A neural network approach to inflation forecasting: the case of Italy
by Jane M. Binner, Alicia M. Gazely
Global Business and Economics Review (GBER), Vol. 1, No. 1, 1999

Abstract: In this paper, a Divisia monetary index measure of money is constructed for the Italian economy and its inflation forecasting potential is compared with that of its traditional simple sum counterpart. The powerful and flexible Artificial Intelligence technique of neural networks is used to allow a completely flexible mapping of the variables and a greater variety of functional form than is currently achievable using conventional econometric techniques. Results show that superior tracking of inflation is possible for networks that employ a Divisia M2 measure of money. During a period of high financial innovation in Italy Divisia outperforms simple sum at both the AL and M2 levels of monetary aggregation. This support for Divisia is entirely consistent with findings based on standard econometric techniques. Divisia monetary aggregates appear to offer advantages over their simple sum counterparts as macroeconomic indicators. Further, the combination of Divisia measures of money with the artificial neural network offers a promising starting point for improved models of inflation.

Online publication date: Mon, 07-Feb-2005

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the Global Business and Economics Review (GBER):
Login with your Inderscience username and password:

    Username:        Password:         

Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com