The measure matters: differences in the passthrough of inflation expectations in Colombia

Andres Sanchez-Jabba and Erick Villabon-Hinestroza

No 1205, BIS Working Papers from Bank for International Settlements

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.

Keywords: inflation expectations; inflation dynamics; new-Keynesian Phillips curve; generalised method of moments (search for similar items in EconPapers)
JEL-codes: C26 D84 E12 E31 (search for similar items in EconPapers)
Date: 2024-08
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bis.org/publ/work1205.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1205.htm (text/html)

Related works:
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:bis:biswps:1205

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().