Connectionist-Based Rules Describing the Pass-Through of Individual Goods Prices into Trend Inflation in the United States
Federal Reserve Bank of St. Louis Working Paper No. 2011-007A
32 Pages Posted: 17 Feb 2011
Date Written: February 16, 2011
Abstract
This paper examines the inflation "pass-through" problem in American monetary policy, defined as the relationship between changes in the growth rates of individual goods and the subsequent economy-wide rate of growth of consumer prices. Granger causality tests robust to structural breaks are used to establish initial relationships. Then, feedforward artificial neural network (ANN) is used to approximate the functional relationship between selected component subindexes and the headline CPI. Moving beyond the ANN "black box," we illustrate how decision rules can be extracted from the network. Our custom decompositional extraction algorithm generates rules in human-readable and machine-executable form (Matlab code). Our procedure provides an additional route, beyond direct Bayesian estimation, for empirical econometric relationships to be embedded in DSGE models. A topic for further research is embedding decision rules within such models.
Keywords: Consumer prices, Inflation, Neural Network, Data Mining, Rule Generation
JEL Classification: E31, C45
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Imperfect Competition and the Effects of Energy Price Increases on Economic Activity
-
Not All Oil Price Shocks are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market
By Lutz Kilian
-
Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative
By Robert Barsky and Lutz Kilian
-
Oil and the Macroeconomy Since the 1970s
By Robert Barsky and Lutz Kilian
-
Oil and the Macroeconomy Since the 1970s
By Robert Barsky and Lutz Kilian
-
The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so Different from the 1970s?
By Olivier J. Blanchard and Jordi Galí
-
The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?
By Olivier J. Blanchard and Jordi Galí
-
The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?
By Olivier J. Blanchard and Jordi Galí
-
Exogenous Oil Supply Shocks: How Big are They and How Much Do They Matter for the Us Economy?
By Lutz Kilian