ABSTRACT. We use a dynamic factor model proposed by Stock and Watson [1998, 1999,2002a,b] to forecast Colombian inflation. The model includes 92 monthly series observedover the period 1999:01-2008:06. The results show that for short-run horizons, factor modelforecasts significantly outperformed...

Three methodologies to estimate the natural interest rate, NIR, are implemented for the Colombian economy. Two methods are statistical filters and the third involves some economic theory. The first method is based on unobserved components decomposition of the real interest rate and explores the...

Many developing countries are adopting inflation targeting regimes to guide monetary policy decisions. In such countries the share of food in the consumption basket is high and policy makers often employ total inflation (as opposed to core inflation) to set inflationary targets. Therefore,...

We use a dynamic factor model proposed by Stock and Watson [1998, 1999, 2002a,b] to forecast Colombian inflation. The model includes 92 monthly series observed over the period 1999:01-2008:06. The results show that for short-run horizons, factor model forecasts significantly outperformed the...

This paper derives a link between the forecasts of professional forecasters and a DSGEmodel. I show that the forecasts of a professional forecaster can be incorporated to the statespace representation of the model by allowing the measurement error of the forecast and thestructural shocks to be...

The assessment of inflationary pressures in Colombia has faced two important challenges inthe present decade. The …rst one occurred in 2006 and consisted of detecting an overheatingeconomy in the midst of fast growing investment and increasing measured productivity. Thesecond challenge took...

Three methodologies of estimation of models with many predictors are implemented to forecast Colombian inflation. Two factor models, based on principal components, and partial least squares, as well as a Bayesian regression, known as Ridge regression are estimated. The methodologies are compared...

An application of Bayesian Model Averaging, BMA, is implemented to construct combined forecasts for the colombian inflation for the short and medium run. A model selection algorithm is applied over a set of linear models with a large dataset of potencial predictors using marginal as well as...