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Forecasting Inflation in Latin America with Core Measures

Pablo Pincheira (), Jorge Selaive () and Jose Nolazco ()

MPRA Paper from University Library of Munich, Germany

Abstract: We explore the ability of core inflation to predict headline CPI annual inflation for a sample of 8 developing economies in Latin America during the period January 1995-May 2017. Our in-sample and out-of-sample results are roughly consistent in providing evidence of predictability in the great majority of our countries, although, as usual, a slightly stronger evidence of predictability comes from the in-sample analysis. The bulk of the out-of-sample evidence of predictability concentrates at the short horizons of 1 and 6 months. In contrast, at longer horizons of 12 and 24 months, we only find evidence of predictability for two countries: Chile and Colombia. This is both important and challenging, given that monetary authorities in our sample of developing countries are currently implementing or given steps toward the future implementation of inflation targeting regimes, which are heavily based on long run inflation forecasts.

Keywords: Inflation; Forecasting; Time Series; Monetary Policy; Core Inflation; Developing Countries. (search for similar items in EconPapers)
JEL-codes: E31 E37 E4 E47 E50 E52 E58 F4 F41 F47 O11 O23 O54 (search for similar items in EconPapers)
Date: 2017-07-17
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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Journal Article: Forecasting inflation in Latin America with core measures (2019) Downloads
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