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

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 feedforward 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.

► We examine the “pass-through” inflation problem in American monetary policy. ► Causality tests examine links among component prices and headline CPI inflation. ► A neural network summarizes relationships among components and headline CPI. ► We extract decision rules from the neural network.