Inflation Expectations and a Model-Based Core Inflation Measure in Colombia

Abstract

Empirical evidence following conventional tests suggests that inflation expectations in Colombia might not be rational, although the period of disinflation included in the sample makes it difficult to verify this conclusion. Inflation expectations display close ties with observed past and present headline inflation and are affected by exogenous shocks in a possibly non-linear way. A model-based core inflation measure is computed that addresses the shortcomings of traditional exclusion measures when temporary supply shocks have widespread effects and are persistent.

Full Publication: Inflation Mechanisms, Expectations and Monetary Policy

Keywords: Inflation expectations, core inflation, supply shocks, monetary policy

JEL Classification: E31, E37, E52