Discovering

Relationships
Among Economic
Variables using
Machine
Learning
Techniques

Geoff Lee| 11/4/2023

Australia’s National Science Agency

 Background
• Strategic decisions (investment, policy, etc) that will have future
impacts need a forecast of that future to determine appropriate
action
• Quantitative models provide a consistent and rigorous way to
generate correlated forecasts – uncertainty, sensitivity
• Useful for cost-benefit analysis
• Understanding relationships among variables is crucial when
establishing a multi-variate forecast model
• Typically, theoretical models are calibrated to historical data using
regressions, then used to forecast economic conditions into the
future
 Background
• As decision time horizon increases, models become less useful:
• Models’ high uncertainty dominates
• Relationships between economic variables may change over the
longer horizon
• Theoretical models and assumptions may not hold in practice
• Decision-makers become less interested in absolute value, more
interested in relative levels – rely more on qualitative future
scenarios (e.g. we think the electricity price will double in 10
years) and somewhat independently risk factor to risk factor
• Machine learning techniques offer a complementary approach –
uncover relationships that may not be apparent
 Methodology
• Clustering techniques commonly used to analyse financial data –
mostly in stocks/economic performance
• Use shape-based approach to cluster time series to explore
relationships between variables more broadly
• Complexity-Invariant Distance measure for clustering metric –
corrects a standard distance measure such as Euclidean distance –
better results than DTW
 Methodology

• Global kernel k-means algorithm – the input space mapped to

kernel function – not dependent on initial condition and avoids local
minima in finding clusters
• Kernel functions can include polynomial, Gaussian radial basis
functions and sigmoid
• The elbow method
Case Study
 Data
• Choose three data sets to explore across different domains
• Agriculture: Beef price
• Energy: Natural gas price
• Economic: Australian Consumer Price Index (CPI) rate
• Data sources:
• Monthly beef price from Bloomberg (Jan 1993 – Dec 2022)
• Daily trading spot price from the Henry Hub Natural Gas price (Jan
1993 to Sept 2021)
• Quarterly CPI data from the Australian Bureau of Statistics (1 st qrtr
1993 – 1st qrtr 2023)
• Take quarterly data from Jan 1993 to Sept 2021.
Data
 Procedure
• Choice of lag:
Procedure
Results
Results
Results
 Conclusions

• Novel clustering methodology for analysing time series data and

identifying relationships between economic variables
• Methodology demonstrated through case study with three
variables – gas price, beef price and CPI
• Web visualisation tool for decision makers to interact

• Future work – causality, identifying links between variables

automatically
 Thank you!
Contact:

Dr Geoff Lee, Team Leader, Decision

Making Under Uncertainty

Email:
Geoffrey.lee@data61.csiro.au

Australia’s National Science Agency