What drives inflation expectations in Guatemala, and what do they imply for monetary policy decisions?

Autores/as

  • Guisela Hurtarte Aguilar Banco de Guatemala

Palabras clave:

Inflation Expectations, Monetary Policy, Impulse Response Functions, DSGE Models

Resumen

This paper examines the process of inflation expectation formation in Guatemala since the adoption of inflation targeting in 2005. It also tries to measure the impact of inflation expectations on monetary policy decisions through impulse response functions derived from a hybrid Dynamic Stochastic General Equilibrium (DSGE) model calibrated for the Guatemalan economy. Unlike the results obtained by Cerisola and Gelos (2005), there is signicant evidence of inflation persistence in determining expectations, and relatively high volatility in the process of expectation formation. As a result, monetary policy decisions tend to be biased upward, with negative consequences for consumers, firms, and for overall economic activity in the short run.

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Publicado

2018-10-12