Constructive Data Mining: Modeling Argentine Broad Money Demand
FRB International Finance Discussion Paper No. 943
36 Pages Posted: 1 Nov 2008
Date Written: September 4, 2008
This paper assesses the empirical merits of PcGets and Autometrics -- two recent algorithms for computer-automated model selection -- using them to improve upon Kamin and Ericsson's (1993) model of Argentine broad money demand. The selected model is an economically sensible and statistically satisfactory error correction model, in which cointegration between money, inflation, the interest rate, and exchange rate depreciation depends on the inclusion of a "ratchet" variable that captures irreversible effects of inflation. Short-run dynamics differ markedly from the long run. Algorithmically based model selection complements opportunities for the researcher to contribute value added in the empirical analysis.
Keywords: Argentina, autometrics, broad money, dynamic specification, cointegration, conditional models, currency substitution, dollarization, error correction, exogeneity, hyperinflation, irreversibility, model design, model selection, money demand, PcGets, ratchet effect
JEL Classification: C52, E41
Suggested Citation: Suggested Citation