Forecasting Inflation in Latin America with Core Measures

25 Pages Posted: 1 Aug 2017

See all articles by Pablo M. Pincheira

Pablo M. Pincheira

Adolfo Ibanez University - School of Business

Jorge Selaive

University of Chile - Business School

Jose Nolazco

University of Chile - Department of Economics

Date Written: July 17, 2017

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

JEL Classification: E4,E17, E31, E37, E52, E58, F37, F41, F47, O1, O2, O11, O23, O54

Suggested Citation

Pincheira, Pablo M. and Selaive, Jorge and Nolazco, Jose, Forecasting Inflation in Latin America with Core Measures (July 17, 2017). Available at SSRN: https://ssrn.com/abstract=3010864 or http://dx.doi.org/10.2139/ssrn.3010864

Pablo M. Pincheira (Contact Author)

Adolfo Ibanez University - School of Business ( email )

Diagonal Las Torres 2640
Peñalolén
Santiago
Chile

Jorge Selaive

University of Chile - Business School ( email )

Chile

Jose Nolazco

University of Chile - Department of Economics ( email )

Diagonal Paraguay 257
Torre 26, Of. 1801
Santiago
Chile

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