Constructive Data Mining: Modeling Australian Inflation
Source: Federal Reserve Board
This paper improves upon de Brouwer and Ericsson's (1998) model of Australian inflation in three directions: cointegration analysis, treatment of weak exogeneity, and model design. On the third issue, recent developments in computer-automated model selection help obtain a more parsimonious, empirically constant, data-coherent, encompassing error correction model for inflation in Australia. The level of consumer prices is a mark-up over domestic and import costs, with adjustments for dynamics and relative aggregate demand.