Navigating high inflation: A joint analysis of inflation dynamics and long-term inflation expectations in Latin America
The return of high inflation in Latin America (and worldwide) since 2021 has renewed concerns about the persistence of above-target inflation and a potential de-anchoring of inflation expectations. This paper shows that trend inflation estimation using forward-looking information can offer important...
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| Format: | Article |
| Language: | English |
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Elsevier
2024-12-01
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| Series: | Latin American Journal of Central Banking |
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| Online Access: | http://www.sciencedirect.com/science/article/pii/S2666143824000152 |
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| author | Juan Angel Garcia Ricardo Gimeno |
| author_facet | Juan Angel Garcia Ricardo Gimeno |
| author_sort | Juan Angel Garcia |
| collection | DOAJ |
| description | The return of high inflation in Latin America (and worldwide) since 2021 has renewed concerns about the persistence of above-target inflation and a potential de-anchoring of inflation expectations. This paper shows that trend inflation estimation using forward-looking information can offer important insights for the understanding of inflation dynamics and long-term inflation expectations. Our analysis for 5 large LATAM economies (Brazil, Chile, Colombia, Mexico and Peru) reveals that a large part of the high inflation observed over 2021–23 mainly reflects transitory influences, and the stability of long-term survey expectations is broadly in line with persistent inflation trends. The risk of a de-anchoring of expectations in those countries therefore seems to be limited. Our findings provide useful information for both monetary policy and market participants in LATAM countries, as well as for central banks and investors worldwide. |
| format | Article |
| id | doaj-art-77c2c92796334388a5f4deae01d30eda |
| institution | DOAJ |
| issn | 2666-1438 |
| language | English |
| publishDate | 2024-12-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Latin American Journal of Central Banking |
| spelling | doaj-art-77c2c92796334388a5f4deae01d30eda2025-08-20T02:49:01ZengElsevierLatin American Journal of Central Banking2666-14382024-12-015410013310.1016/j.latcb.2024.100133Navigating high inflation: A joint analysis of inflation dynamics and long-term inflation expectations in Latin AmericaJuan Angel Garcia0Ricardo Gimeno1Capital Markets and Financial Structure Division, DG-Monetary Policy, European Central Bank, Sonnemannstrasse 20, 60314 Frankfurt am Main, Germany; Corresponding author.Operations Departament, Banco de España, SpainThe return of high inflation in Latin America (and worldwide) since 2021 has renewed concerns about the persistence of above-target inflation and a potential de-anchoring of inflation expectations. This paper shows that trend inflation estimation using forward-looking information can offer important insights for the understanding of inflation dynamics and long-term inflation expectations. Our analysis for 5 large LATAM economies (Brazil, Chile, Colombia, Mexico and Peru) reveals that a large part of the high inflation observed over 2021–23 mainly reflects transitory influences, and the stability of long-term survey expectations is broadly in line with persistent inflation trends. The risk of a de-anchoring of expectations in those countries therefore seems to be limited. Our findings provide useful information for both monetary policy and market participants in LATAM countries, as well as for central banks and investors worldwide.http://www.sciencedirect.com/science/article/pii/S2666143824000152Trend inflationSurvey inflation expectationsState space modelStochastic volatility |
| spellingShingle | Juan Angel Garcia Ricardo Gimeno Navigating high inflation: A joint analysis of inflation dynamics and long-term inflation expectations in Latin America Latin American Journal of Central Banking Trend inflation Survey inflation expectations State space model Stochastic volatility |
| title | Navigating high inflation: A joint analysis of inflation dynamics and long-term inflation expectations in Latin America |
| title_full | Navigating high inflation: A joint analysis of inflation dynamics and long-term inflation expectations in Latin America |
| title_fullStr | Navigating high inflation: A joint analysis of inflation dynamics and long-term inflation expectations in Latin America |
| title_full_unstemmed | Navigating high inflation: A joint analysis of inflation dynamics and long-term inflation expectations in Latin America |
| title_short | Navigating high inflation: A joint analysis of inflation dynamics and long-term inflation expectations in Latin America |
| title_sort | navigating high inflation a joint analysis of inflation dynamics and long term inflation expectations in latin america |
| topic | Trend inflation Survey inflation expectations State space model Stochastic volatility |
| url | http://www.sciencedirect.com/science/article/pii/S2666143824000152 |
| work_keys_str_mv | AT juanangelgarcia navigatinghighinflationajointanalysisofinflationdynamicsandlongterminflationexpectationsinlatinamerica AT ricardogimeno navigatinghighinflationajointanalysisofinflationdynamicsandlongterminflationexpectationsinlatinamerica |