The low predictive power of simple Phillips curves in Chile

Brown, Pablo Pincheira; Hurtado, Hernán Rubio

doi:10.18356/03532923-en

Cited by 3 publications

(1 citation statement)

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“…The VAR analysis in this section points to a relatively strong response of activity to policy rates, while the transmission from activity to inflation is found to be weaker (the latter being about three times as weak as the former at a two-year horizon). This confirms previous findings on price formation for Chile, overall suggesting a limited informational content of the Phillips curve (García andRestrepo, 2001, Pincheira andRubio, 2015). By implication, the output costs of raising rates to control inflation in response to a depreciation shock are potentially high.…”

Section: / At Six Monthssupporting

confidence: 89%

Outside the Band: Depreciation and Inflation Dynamics in Chile

Ruiz

2016

IMF Working Papers

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This paper examines inflation dynamics in Chile during the last peso depreciation episode 2013−15. The evidence is for substantial pass-through effects to inflation, given the large and persistent depreciation movement. Widespread indexation practices in non-traded goods markets are found to amplify the inflation response to the depreciation, while the role of wage indexation is less relevant to the inflation dynamics. Overall, inflation would have remained within the central bank's target band absent the peso depreciation. The analysis also shows that tightening monetary policy in response to a depreciation shock can be costly in terms of output: the response of activity to rates is found to be strong, while the transmission from activity to inflation is found to be weak. Simulations under uncertainty about the extent of the pass-through also suggest that monetary policy can play a countercyclical role in the face of depreciation shocks at a moderate inflationary cost, as long as inflation expectations remain anchored.

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Section: / At Six Monthssupporting

confidence: 89%

Outside the Band: Depreciation and Inflation Dynamics in Chile

Ruiz

2016

IMF Working Papers

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Forecasting inflation in Latin America with core measures

Pincheira-Brown

Selaive

Nolazco

2019

International Journal of Forecasting

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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 insample 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.

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The return of Keynes and the Phillips curve in Latin America: evidence from four countries

Caldentey

Perry

Vernengo

2020

ROKE

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Robert Rowthorn, in his Godley–Tobin Lecture, suggests that Keynesian policies have again been incorporated by the mainstream of the profession, and the old Phillips relation is again relevant. In other words, there seems to be a persistent trade-off between inflation, wage inflation in particular, and unemployment rates, properly measured, which would create the space for Keynesian policies. This paper discusses the return of Keynesian economics, in particular in Latin American economies. While it is true that Keynesian economics made a comeback in terms of policy in Latin America, as in other parts of the world, in the aftermath of the global financial crisis of 2008–2009, it is also true that the Keynesian moment was relatively weak and short-lived. The evidence in Latin America for a Phillips curve is relatively weak, and suggests that inflation is often cost-push rather than demand-pull, which could be understood to suggest that there is space for expansionary fiscal policy, at least in the absence of an external constraint. The authors remain skeptical about the return of Keynesian economics at the theoretical level, and the possibilities for Keynesian policies in the region.

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The low predictive power of simple Phillips curves in Chile

Cited by 3 publications

References 34 publications

Outside the Band: Depreciation and Inflation Dynamics in Chile

Outside the Band: Depreciation and Inflation Dynamics in Chile

Forecasting inflation in Latin America with core measures

The return of Keynes and the Phillips curve in Latin America: evidence from four countries

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