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Commodity Prices and Inflation Expectations in Chile

54 Pages Posted: 23 Apr 2016  

Andres Ayala

Columbia University - Columbia Business School

Date Written: April 2016


I examine whether commodity prices have been a contributor to the inflation volatility experienced by the Chilean economy in recent years. First, I show that of all commodities, oil is the most significantly correlated with future inflation and inflationary expectations. Next, I use a Gaussian affine term structure model with observable macroeconomic factors to quantitatively study how shocks to oil prices affect bond yields and inflation expectations. I find a statistically significant but economically modest effect. An increase in the price of oil of 20% raises one-year inflation expectations by 25 basis points, while five-year expectations increase only by 8 basis points. The results suggest that central banks could benefit from paying attention to commodity prices when setting monetary policy.

JEL Classification: E44, G01, G12, G20

Suggested Citation

Ayala, Andres, Commodity Prices and Inflation Expectations in Chile (April 2016). Columbia Business School Research Paper No. 16-32. Available at SSRN: or

Andres Ayala (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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