Experimenting with Large Language Models for Inflation Forecasting in Colombia

Aaron Garavito, Wilmer Martinez-Rivera, Juan Ospina-Tejeiro and Edgar Caicedo-Garcia
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Wilmer Martinez-Rivera: Central Bank of Colombia
Edgar Caicedo-Garcia: Central Bank of Colombia

No 23-2026, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper develops and applies a standardized framework for forecasting year-on-year inflation in Colombia using large language models (LLMs). We conduct six sequential experiments in which the information set available to the models is progressively expanded by incorporating historical macroeconomic data, contextual indicators, explicit economic structure, and contemporaneous information retrieved through web search. Each configuration is executed daily and generates 24-month inflation forecasts in real time rather than retrospectively, together with qualitative explanations of the forecasts and, in the more advanced configurations, assessments of the shocks affecting inflation. This real-time design mitigates look-ahead bias and produces genuine forecast vintages. The framework is implemented as a programmatic pipeline in Python that queries the OpenAI and Google APIs, executes predefined experiment-specific prompts, and automatically processes and stores the model responses, while applying forecast validation and revision procedures in the more advanced configurations. The results show that richer information environments produce less monotonic inflation paths that remain above the 3% target over the forecast horizon and are more consistent with the contemporaneous domestic and external shocks affecting inflation. The qualitative analysis also shows that the models consistently identify relevant inflation drivers and their interactions. These richer forecast paths are broadly consistent with the pattern observed in survey-based inflation expectations. A formal evaluation of forecast accuracy will be conducted as additional real-time forecast vintages become available.

Keywords: Large language models; Inflation forecasting; Colombia; Prompt design (search for similar items in EconPapers)
JEL-codes: C53 E01 E23 E31 E37 F31 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2026-08-25, Revised 2026-09-01
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