Template-Type: ReDIF-Paper 1.0
Author-Name: Andres Sanchez-Jabba
Author-X-Name-First: Andres
Author-X-Name-Last: Sanchez-Jabba
Author-Name: Erick Villabon-Hinestroza
Author-X-Name-First: Erick
Author-X-Name-Last: Villabon-Hinestroza
Title: The measure matters: differences in the passthrough of inflation expectations in Colombia
Abstract: This study examines the effect of different measures of inflation expectations on inflation dynamics in Colombia from 2009 to 2024. We estimate New Keynesian Phillips Curves (NKPC) and Structural VAR (SVAR) models using data from economic surveys and sovereign bond yields. Our results show that survey-based expectations have a greater passthrough to inflation, with a one percentage-point increase leading to a 0.8 percentage-point rise in inflation, compared to a 0.67 percentage-point rise from market-based expectations. These differences are attributed to how economic agents form expectations, influenced by asymmetric losses, forecasting costs, and information rigidities. Our findings provide crucial insights for monetary authorities, who increasingly rely on various measures of inflation expectations for policy analysis. Understanding the distinct effects of these measures helps central banks implement policies that avoid unintended consequences, such as unnecessary contractions in economic activity.
Creation-Date: 2024-08
File-URL: https://www.bis.org/publ/work1205.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1205.htm
File-Format: text/html
Number: 1205
Keywords: inflation expectations, inflation dynamics, new-Keynesian Phillips curve, generalised method of moments
Classification-JEL: C26, D84, E12, E31
Handle: RePEc:bis:biswps:1205