Weather Shocks and Inflation Expectations in Semi-Structural Models

José Romero and Sara Naranjo Saldarriaga
Additional contact information
Sara Naranjo Saldarriaga: Banco de la Republica

No 20-2022, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: Colombia is particularly affected by the El Nino Southern Oscillation (ENSO) weather fluctuations. In this context, this study explores how the adverse weather events linked to ENSO affect the inflation expectations in Colombia and how to incorporate these second-round effects into a small open economy New Keynesian model. Using BVARx models we provide evidence that the inflation expectations obtained from surveys and break-even inflation measures are affected by weather supply shocks. Later, using this stylised fact, we modify one of the core forecasting models of the Banco de la Republica by incorporating the mechanisms in which weather-related shocks affect marginal costs and inflation expectations. We find that ENSO shocks had an important role in both inflation and the dynamics of inflation expectations, and that policymakers should consider this fact.

Keywords: Inflation; inflation expectations; inflation expectations anchoring; weather shocks (search for similar items in EconPapers)
JEL-codes: D84 E31 E52 Q54 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2022-08-15
New Economics Papers: this item is included in nep-cba, nep-dge, nep-env and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP20-2022.pdf (application/pdf)

Related works:
Journal Article: Weather shocks and inflation expectations in semi-structural models (2024)
Working Paper: Weather Shocks and Inflation Expectations in Semi-Structural Models (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp20-2022

Access Statistics for this paper

More papers in IHEID Working Papers from Economics Section, The Graduate Institute of International Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dorina Dobre ().