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Functional Time Series in the Analysis of Expected Inflation Survey in Costa Rica

Author

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  • Fabio Gómez-Rodríguez

    (Department of Economic Research, Central Bank of Costa Rica)

Abstract

Expected inflation surveys show, month by month, a variety perspectives on inflation’s future path. Statistics such as the mean, median, and percentiles typically summarize the information contained in these surveys. This paper uses functional time series to analyze the entire distribution of inflation expectations surveys. Functional components become crtitical in sumarzing the data. The analysis consists of three exercises: i) complete, through simulations and macroeconomic variables, the interruption of these surveys from December 2020 to November 2021, ii) predict what will be the density function (and with it the distribution) of inflation expectations for the current month and iii) generate an expected inflation instrument based on data from surveys and the market that allows interpreting expectations and taking advantage of their predictive power. It is recommended to use the entire distribution of inflation expectations in monetary policy analysis. ***Resumen: Las encuestas de expectativas de inflación muestran, mes a mes, una variedad perspectivas sobre lo que va ser la inflación en el futuro. Típicamente se usan estadísticas como la media, la mediana y percentiles para resumir la información contenida en estas encuestas. En este documento de investigación se usan series de tiempo funcionales para analizar toda la distribución de las encuestas de expectativas de inflación. Con este fin se extraen componentes principales funcionales que luego se usan en tres ejercicios: i) completar por medio de simulaciones y variables macroeconómicas el periodo de pausa de las encuestas de diciembre 2020 a noviembre 2021, ii) predecir la que va ser la función de densidad (y con esta la distribución) de la encuestas de expectativas de inflación para el mes en curso y iii) generar un indicador de expectativas de inflación basado en la información de encuestas y de mercado. Esto permite interpretar las expectativas y aprovechar el poder predictivo de la mismas. Se recomienda usar toda la distribución de las expectativas de inflación en el análisis de política monetaria.

Suggested Citation

  • Fabio Gómez-Rodríguez, 2023. "Functional Time Series in the Analysis of Expected Inflation Survey in Costa Rica," Documentos de Trabajo 2303, Banco Central de Costa Rica.
    • Handle: RePEc:apk:doctra:2303
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    File URL: https://repositorioinvestigaciones.bccr.fi.cr/handle/20.500.12506/381
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    References listed on IDEAS

    as
    1. Park, Joon Y. & Qian, Junhui, 2012. "Functional regression of continuous state distributions," Journal of Econometrics, Elsevier, vol. 167(2), pages 397-412.
    2. Yoosoon Chang & Fabio Gómez-Rodríguez & Mr. Gee Hee Hong, 2022. "The Effects of Economic Shocks on Heterogeneous Inflation Expectations," IMF Working Papers 2022/132, International Monetary Fund.
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    Keywords

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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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