FRB: Constructive Data Mining: Modeling Argentine Broad Money Demand

International Finance Discussion Papers

Constructive Data Mining: Modeling Argentine Broad Money Demand
Neil R. Ericsson and Steven B. Kamin
2008-943 (September 2008)

Abstract: 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.

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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

Related Material
Data (524 KB ZIP) Data and empirical results

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