Explaining Inflation in Colombia: A Disaggregated Phillips Curve Approach

30 Pages Posted: 1 Aug 2018

See all articles by Sergi Lanau

Sergi Lanau

International Monetary Fund (IMF)

Adrian Robles

International Monetary Fund (IMF)

Frederik Toscani

International Monetary Fund

Date Written: May 2018

Abstract

We study inflation dynamics in Colombia using a bottom-up Phillips curve approach. Thisallows us to capture the different drivers of individual inflation components. We find that thePhillips curve is relatively flat in Colombia but steeper than recent estimates for the U.S.Supply side shocks play an important role for tradable and food prices, while indexationdynamics are important for non-tradable goods. We show that besides allowing for a moredetailed understanding of inflation drivers, the bottom-up approach also improves on anaggregate Phillips curve in terms of forecasting ability. In the baseline forecast scenario, bothheadline and core inflation converge towards the Central Bank's inflation target of 3 percentby end-2018 but these favorable inflation dynamics are vulnerable to large supply shocks.

Keywords: Inflation, Forecasting, Econometric models, Colombia, Inflation Components, Phillips Curve, Forecast, Forecasting and Simulation

JEL Classification: E31, E37

Suggested Citation

Lanau, Sergi and Robles, Adrian and Toscani, Frederik, Explaining Inflation in Colombia: A Disaggregated Phillips Curve Approach (May 2018). IMF Working Paper No. 18/106, Available at SSRN: https://ssrn.com/abstract=3221125

Sergi Lanau (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Adrian Robles

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Frederik Toscani

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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