Connectionist-based rules describing the pass-through of individual goods prices into trend inflation in the United States

Authors

Richard G. Anderson, Federal Reserve Bank of St. Louis, University of SheffieldFollow
Jane M. Binner, University of SheffieldFollow
Vincent A. Schmidt, U.S. Air Force Research LaboratoryFollow

Date of this Version

2012

Citation

Economics Letters 117, 2012

Comments

U.S. Government work

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. Initial relationships are established with Granger causality tests robust to structural breaks. A feed forward 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.