Effects of fiscal credibility on inflation expectations: evidence ...2021/01/04 · trol (Blinder...

Effectsoffiscal credibilityoninflationexpectationsevidencefromanemerging economy

JUANCAMILOANZOAacuteTEGUI-ZAPATAMScJUANCAMILOGALVIS-CIROPhD

ArticleJELE37E62E61httpsdoiorg103326pse4514

TheauthorswouldliketothanktwoanonymousrefereesforhelpfulcommentsonearlierversionsofthispaperAnyremainingerrorsarethesoleresponsibilityoftheauthors

ReceivedJuly162020 AcceptedNovember102020

JuanCamiloANZOAacuteTEGUI-ZAPATAUniversidadAutoacutenomaLatinoamericanaDepartmentofEconomicsCarrera55ANo49-51MedelliacutenColombiae-mailjuananzoateguiunaulaeducoORCiD0000-0003-0588-1364

JuanCamiloGALVIS-CIROUniversidadPontificiaBolivarianaDepartmentofEconomicsCircular1No70-01MedellinColombiae-mailjcgalviscirogmailcomORCiD0000-0001-6680-275X

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45 (1) 125-148 (2021)

126 AbstractThis paper analyses the impact of fiscal imbalances on expectations for an emerg-ing economy with inflation targeting In particular based on the Colombian expe-rience we build a fiscal credibility index and evaluate its impact on inflation expectations for the 2004-2019 period To analyse fiscal and monetary interac-tions we propose an econometric model and use the OLS and GMM methods The results show that the loss of fiscal credibility associated with divergences between the fiscal deficit and agentsrsquo expectations can increase inflation expectations by between 9 and 12 Furthermore inflation expectations in Colombia incorpo-rate important macroeconomic information related to unemployment GDP and exchange rates

Keywords inflation expectations fiscal policy credibility

1 INTRODUCTIONTheanchoringfactors for inflationexpectationsareessential forfine-tuninganeconomicpolicyframework(MankiwReisandWolfers2003)Ininflationtar-geting expectations aremonitored by central banks because agents set pricesaccordingto their inflationforecastingTheseexpectationsaffect the long-termstructureoftheinterestratetheplannedexpenditureandthereforeinflationcon-trol(Blinderetal2008)AccordingtotheseminalcontributionsofSargentandWallace(1981)afiscalpolicystanceisrelevantforcontrollinginflationexpecta-tionsInthisregardifthepublicexpectsthatthefiscalpositionisunsustainableinflationexpectationswillnotbe lowBasedon this relativeconsensus ineco-nomic theory there is a growing and dynamic literature on the interactionsbetweenfiscalandmonetarypoliciesinemergingeconomies

PromptedbySargentandWallace(1981)somestudieshavesoughttoanalysetheempiricalandtheoreticalrelationshipbetweenfiscalvariablesandinflationexpec-tationsineconomieswithinflationtargetsFirstCataoandTerrones(2003)findthatdeficitGDPratiodownturnsproduceasignificantreductionininflationwithmore effects in countrieswith high and persistent inflationA similar result isreportedbydeMendonccedilaandMachado(2013)CelasunGelosandPrati(2004)aswell as deMendonccedila andTostes (2015) note that fiscal balance recoveriesreduceinflationexpectationsandobservedinflationOtherstudiessuchasCeri-solaandGelos(2009)suggestthattheinflationtargetpastinflationandthepri-mary fiscal balance can anchor inflation expectations in emerging economiesNonetheless Celasun Gelos and Prati (2004) provide empirical evidence thatinflationexpectationshavebackward-lookingcomponentsdespiteinflationtargetannouncementsSimilarresultsarereportedbyAraujoandGaglianone(2010)andGaglianone (2017)whohighlight that inflation expectations showpersistenceOtherperspectivesforexampleBerlemannandElzemann(2006)findthatinfla-tionexpectationsaredrivenbypresidential election results and theprobabilitythatleftistpartieswillcometopower

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45 (1) 125-148 (2021)127Withcentralbankindependencetheuseoftheinflationtaxtoachievefiscalbal-

ancedecreases(MineaandTapsoba2014)Inflationtargetingadoptionleadstoagovernmentcommitmenttofiscalsustainabilitywhichallowsinflationexpecta-tionstobeanchoredinthecentralbankrsquostargets(seeforexampleCerisolaandGelos 2009)With this perspective being borne inmind the objective of thispaper isempiricalandconsistsofexamining theeffectsoffiscalcredibilityoninflationexpectationsintheColombianeconomy

ColombiaisasmallemergingeconomyinLatinAmericathathasmadeimportanteffortstoachievebettereconomicstabilitythroughacoherentandprudentpolicyIntheColombiancasethegovernmentadoptedtheinflationtargetingattheendof1999Since2000theCentralBankofColombiahasimproveditscommunicationwithmarketsbyinformingthemaboutinflationtargetsandmonetarypolicyman-agement(HamannHofstetterandUrrutia2014)Since2003thecentralbankhasimplementedsophisticatedmethodologiestomonitorinflationexpectationsfiscaldeficit expectations and expected economic growth In the fiscal managementstrandthegovernmentestablishedadecreasinggoalforthefiscaldeficit tocon-vincemarketsaboutfiscalbalance sustainabilityAsa result aftermore than10yearstheColombianeconomyrecovereditsinvestmentgrade(Moodyrsquos2014)InsumColombiaisaninterestingeconomiclaboratoryinwhichtoanalysetheinter-actionsbetweenmonetaryandfiscalpolicy(CiroanddeMendonccedila2017)

ThispaperoffersanewperspectiveontheproblemoffiscaleffectsoninflationexpectationsFirstweusecentralbankexpectationssurveysandbuildafiscalcredibilityindexbasedonoverallfiscaldeficitexpectationsSecondweanalysethelong-termrelationshipsthatmayexistbetweenfiscalcredibilityandinflationexpectationsbasedonacointegrationmodelThirdweverifywhether for theformationofinflationexpectationsagentsconsidertheavailablepublicinforma-tionaboutmacroeconomicvariablesFinallythisstudypresentsacontributiontotheunderstandingoftheeffectsoffiscalcredibilityoninflationexpectationsintheColombiancaseTheresultsshowthatthelossoffiscalcredibilitywhichisasso-ciatedwithdivergencesbetween thefiscaldeficitandagentsrsquoexpectationscanincreaseinflationexpectationsbybetween9and12FurthermorethisstudyshowsthatinflationexpectationspresentinertiaandreacttoGDPandtheexchangerateTheevidencealsoindicatesthatthe2008subprimecrisisincreasedinflationexpectationsinColombia

Theremainderofthispaperisorganizedasfollowssection2presentsaliteraturereviewsection3presentsthemethodologyformeasuringfiscalcredibilitysec-tion4providesempiricalevidencebymeansofeconometricanalysisonthefis-calcredibilityeffectoninflationexpectationsandsection5concludesthepaper

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45 (1) 125-148 (2021)

128 2 FISCAL CREDIBILITY AND INFLATION TARGETINGTheinflationtargetingframeworkrequiresahighdegreeofcoordinationbetweenthecentralbankandfiscalpolicyInfactforthepolicyframeworktobecredibletherecannotbepermanentfiscaldeficitsthatleadtofiscaldominanceandpublicdebtmonetization(MishkinandSavastano2001AllsoppandVines2005DeMendonccedila2007)Theabsenceoffiscaldominanceisarequirementforinflationtargeting(MishkinandSavastano2001)For this institutionsarenecessary toensurethebankrsquosindependenceandthegovernmentrsquoscommitmentstofiscalbal-ance(Wyplosz2005)

AccordingtoGuumlrkaynakLevinandSwanson(2010)andStrohsalMelnickandNautz(2016)long-terminflationexpectationsshouldnotrespondtomacroeco-nomicinformationwhenthereiseconomicpolicycredibilityInLatinAmericafiscal imbalancesareaproblemandcastdoubtonmonetarypolicycredibilityFiscalbalanceisthusanindicatorthatmustbecarefullymonitoredtoensurethecredibility of the inflation targets (Minea andTapsoba 2014)One strategy toresolvethisproblemresortstotheimpositionoffiscalresponsibilitylaws(DebrunHaunerandKumar2009LinandYe2009deMendonccedilaanddaSilva2016)Followinguponthisideaseveralstudieshaveanalysedtheeffectoffiscaltargetsorrulesoninflation

Onestrandoftheliteraturehasfocusedonmeasuringtheeffectsoffiscalcredibilityinemergingeconomiesunder inflation targetingThis literaturefocusesonfiscalcredibilityindicestoidentifytheireffectsonmacroeconomicvariablesInthecaseofBraziltherearefiscalcredibilityindicesonthedeficitandpublicdebtTheresultsofthesestudiesshowthatfiscalcredibilityhelpstoanchorinflationexpectationsreducesinflationarypressuresandexchangeratepass-throughoninflationlowersdisagreement infiscal expectations and stabilizesmarket interest rates (deMen-donccedilaandTostes2015deMendonccedilaanddaSilva2016MontesandAcar2018)AccordingtodeMendonccedilaandMachado(2013)anincreaseinfiscalcredibilityhelpsfixedratebondstobeissuedFurthermorecredibilityreducesthepublicdebtindexed tomarket interest ratesAlong this same line the studybyMontes andSouza(2020)suggeststhatgreaterfiscalcredibilityreducessovereignrisk

OtherstudieshavefoundsimilarresultswithoutusingcredibilityindicesThorn-tonandVasilakis(2019)usingasampleof61low-andmiddle-incomecountriesfindthatcountriesthatadoptedtransparentfiscalrulesincreasedtheirfiscalcred-ibilityMoreoverinthecaseofIndonesiaKunkoro(2015)showsthatrulesforthefiscaldeficitareadevicetoobtainfiscalcredibilityFurthermorecredibilityreduces deficit volatility and contributes to price stabilityA similar result isreportedforthecaseofJapanAccordingtoShirakawa(2012)whenthegovern-mentlosescredibilityregardingdebtsustainabilityinflationincreasesboostinginterest ratesand increasingdefaultprobabilitiesSimilarly for thecaseof theCzechRepublicKlyuevandSnudden (2011)demonstrate that public expecta-tionsaboutthegovernmentrsquoscommitmentstofiscalconsolidationcanimproveits

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45 (1) 125-148 (2021)129credibilityAccordingtotheirresultsfiscalcredibilityhelpshighertaxincomes

andlowermarketinterestratestobeachieved

OtherempiricalstudiesmeasurecredibilitythroughfinancialmarketsrsquoreactionsInparticularKandilandMorsy(2014)proposethatfiscalcredibilitycanbemeasuredbytheconfidencethatmarketsshowinfiscalstimuliAccordingtotheirresultsfis-calstimulibackedbyinternationalreservesgenerategreatercredibilityandincreasethe impact of stimuli related to public spending In addition credible marketannouncementshelpreducethecostsassociatedwithloansanddebtservice

21 THE COLOMBIAN CASETheBankoftheRepublicthecentralbankofColombiaemergedin1923asanissuetransferdepositanddiscountbankandisthehighestmonetaryexchangeandcreditauthorityinColombiaThebankfunctionedasadevelopmentbankfortheeconomicgrowthofColombiabetween1930and1980Inthoseyearscoffeegrowers industrialists merchants and other agents had representation on theboard of directors In this period the Colombian economy exhibited averageannualinflationratesof20

Theindependenceofthecentralbankwasachievedin1991withthereformofthepolitical constitution ofColombiaAt that time the reform created a board ofdirectorsforthebankmadeupofsevenmembersthegeneralmanagerarepre-sentativeofthegovernmentwhoistheMinisterofFinanceandPublicCreditandfivefull-timemembersAsapositivesignofindependencebetweenmonetaryandfiscalpolicytodatetheBoardofDirectorshasneverapprovedloanstothegov-ernmenttofinancethefiscaldeficit

In2000theCentralBankofColombiaadoptedaninflationtargetingregimeandinflationrateshaveaveraged5peryearInflationtargetingwasadoptedasamon-etarypolicyresponsetoanchorinflationexpectationsandincreasefiscalrestrictions(Goacutemez2006Loacutepez-EncisoVargas-HerreraandRodriacuteguez-Nintildeo2016)Tosup-portthecentralbanksince2004theColombiangovernmenthashaddebtcontrolsandamedium-termfiscalframeworkthatprovidesinformationaboutfiscalplansInadditionin2012theColombiangovernmentadoptedafiscalruletoprogressivelyreducethefiscaldeficitTheobjectiveofthisruleistoachieveaprimaryfiscaldefi-citof less than1ofGDPfrom2022 (Loacutepez-EncisoVargas-HerreraandRod-riacuteguez-Nintildeo2016)Toachieve these targets thegovernmenthascarriedout taxreformstoreducethefiscaldeficitDespiteallthesefiscalcommitmentsreformshavebeenpartialwithanaverageofonetaxreformeverytwoyearsAsaresultfiscalimbalanceshavenotbeenresolvedandfiscalcredibilityislow

3 METHODOLOGYFiscalpolicyhaseffectsonmacroeconomicstabilityandmustbemanagedinaliableandcoherentmanner(FataacutesandMihov2003)Fiscalcredibilityisanassetfor governments and indicates that agents believe that fiscal targets will beachievedandthatasustainablefiscalpositionwillbemaintained(HaunerJonaacuteš

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45 (1) 125-148 (2021)

130 and Kumar 2007) In particular fiscal credibility is relevant to policymakersbecauseitcanhelpguidethemarketinawaythatavoidsrisinginflationexpecta-tions(deMendonccedilaandMachado2013)

Itisimportanttonotethatinthecaseofemergingeconomiesfiscaldeficitscon-stantlyputthefulfilmentofthecentralbankrsquosobjectivesatriskAsaresultinfla-tion expectation control is affected by fiscal credibility (Cerisola and Geros2009)Thispaperevaluatestheeffectsoffiscalcredibilityoninflationexpecta-tionsforthecaseoftheColombianeconomybasedoncentralbankexpectationssurveysThesesurveysaverage40participantsamongprivatebanksstockbro-kers pension funds academics and international organizations In the presentstudyinflationexpectationsarecalculatedas1-year-aheadinflationforecastsoftheparticipantssurveyedThisinformationisavailabletothepublicthroughitscentralbanktimeseriesstatisticssystemDrawingontheinformationavailablewepresenttheinflationexpectationsforthe2004-2019periodinfigure1

Figure 1Inflation expectations in the Colombian economy (in )

Inflation expectations Trend (HP filter)

25

30

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60

2004 2005 2007 2009 2011 2013 2015 20172006 2008 2010 2012 2014 2016

Source Authoracutes elaboration Data from the Central Bank of Colombia Trend calculated with the Hodrick-Prescott filter

Inflationexpectationsdeclinedbetween2004and2013towardsthecentralbankrsquoslong-terminflationtargetwhichwassetat3Thisprocesswaspartiallyinter-ruptedbythesubprimecrisisof2007-2008Since2014therehasbeenanincreaseininflationexpectationsduetothegreatdifficultyofcontrollingsomeunexpectedeventssuchasastrongdevaluationintheexchangerateandsomeinternalcrisescausedbyinternalpoliticalproblemsrelatedtomonetarypolicy

Thereareseveralchallengesinmeasuringfiscalcredibilitybecausethegovern-mentrsquosbudgetconstraintinvolvesseveralvariablesAccordingtodeMendonccedilaandMachado(2013)fiscalcredibilitycanbeevaluatedbypublicconfidenceinrelationto thegovernmentrsquosability toavoidtheriskofdefaultMoreover it ispossible to affirm that there is fiscal credibility when there is a government

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45 (1) 125-148 (2021)131commitmenttothesustainabilityofpublicfinancesAsaresultthereiscredibility

whenthegovernmentdoesnotusetheinflationtaxtofulfilitsobligations(HaunerJonasandKumar2007DebrunandKinda2017)

TomakecredibilitymeasurablethereareseveralproposalsAccordingtoDrazenandMasson(1994)credibilitycanbemeasuredbyagentsrsquoexpectationsregardingthefiscalresultsAnotherapproachisofferedbyNaert(2011)whopostulatesthatfiscalpolicyiscredibleifthereislittledifferencebetweenthecurrentlevelandtheprojectedlevelofsomefiscalmeasureThechallengeistodefinesomemeasureoffiscalperformanceonwhichagentsformexpectationsandmakeprojectionsBasedonDebrunandKinda(2017)fiscalperformancecanbemeasuredbytheoverallfiscaldeficitthatisbythedifferencebetweenexpendituresdebtserviceandtaxesHence

DEFt=Gt + rDtndash1ndashTt (1)

whereDEFtistheoverallfiscaldeficitGtisthepublicexpenditurerDtndash1isthepublicdebtinterestandTtisthetaxrevenuesAllthevariablesaredefinedasapercentageofthegrossdomesticproduct(GDP)

Anessentialpointregardingthecredibilityofeconomicpolicyispublicexpecta-tionAccordingtoCukiermanandMeltzer(1986)credibilitycanbemeasuredastheabsolutevalueofthedifferencebetweenthepolicymakerrsquosplansandthepub-licrsquosbeliefsaboutthoseplansMoreoverashighlightedbyFaustandSvensson(2001)credibilityisnegativelyrelatedtothedistancebetweenagentsrsquoexpecta-tions and the achievements of the policymaker FollowingHauner Jonas andKumar(2007)fiscalcredibilitycanbeapproximatedbythedifferencebetweenagentsrsquoexpectationsofthefiscaldeficit(E(DEFt))andthefiscaldeficitachievedbythegovernment(DEFt)Inotherwordsthegreaterthedifferencebetweentheobservedfiscaldeficitandagentsrsquoexpectationsthelessfiscalcredibilitythereisbecausethereisnoconvergenceinagentsrsquobeliefs

Fromthatperspectivethispaperusesacredibilitylossindicator(CRED_LOSS) that considers thedifferencesbetween theagentsrsquo expectationsabout thefiscaldeficitandtheoverallfiscaldeficitobserved(asanabsolutevalue)

CRED_LOSSt =|E(DEFt)ndashDEFt| (2)

whereE(DEF)isagentsrsquoexpectationsabouttheoverallfiscaldeficitandDEF is theoverallfiscaldeficitobservedThebehaviourofbothvariablesovertimeispresentedinfigure2TheagentsrsquoexpectationsregardingtheoverallfiscaldeficitareextractedfromthesurveyoftheCentralBankofColombiacalledldquoMacroeco-nomicProjectionsofLocalandForeignAnalystsˮInthissurveythecentralbankasksbrokerscommercialbankspension fundsacademic institutesand ratingagencies about the quarterly forecast of several macroeconomic variables

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45 (1) 125-148 (2021)

132 includingtheoverallfiscaldeficitThequarterlydataareavailablefrom2004(seeappendixtableA1)

The behaviour of both variables (DEF and E(DEF)) over time is presented infigure2belowItisobservedthatfrom2004to2008expectationsunderestimatedthe observedfiscal deficitThen since the endof 2008 expectations began togrowandwerelocatedclosetothefiscaldeficitsurpassingitin2010Between2010and2011thegovernmentadoptedafiscalruleontheprimaryfiscaldeficitandfromthenonexpectationsbegantofallFrom2012to2016therehasbeenanincreaseintheobservedfiscaldeficitandconsequentlyinexpectationsThisincreaseinvariablespeakedin2016Sincethentherehasbeenadropinboththeobserveddeficitandtheexpectations

Figure 2Fiscal deficit expectations and overall fiscal deficit observed in Colombia (in of GDP)

Overal fiscal deficit observed Fiscal deficit expectations

0

100

200

300

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500

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019

Source Authoracutes elaboration Data from the Central Bank of Colombia

Figure3showstheperformanceoffiscalcredibilityloss(CRED LOSS)from2004to2019inColombiaTheCRED LOSSindicatorshowsthattherewasuncertaintyaboutfiscalpolicyinthe2006-2008periodAsaresultfiscalcredibilitylosswashighinthatperiodOnceexpectationsbegantoapproachtheobserveddeficitthelossofcredibilityeasedandreachedalowof014in2011Q1AfterthiswebegantoobserveanunstablebehaviourofcredibilitylossDespitethisthetrendoftheseriesshowsthatthelossofcredibilitywasstablebetween2012and2019Forthefullperiod(2004-2019)thecredibilitylosswas09onaverage

SincetheseminalcontributionofKydlandandPrescott(1977)economictheoryhas assumed that an agents expectationsdependon thegovernmentrsquos crediblecommitmenttoanannouncedtargetInotherwordstheexpectedpathofthefiscaldeficitmattersfortheformationofinflationexpectationsInparticularwhenthereisnocommitmenttofiscalequilibriumgovernmentliabilitiesareensuredwithseigniorageandtheoutcomeisanincreaseinexpectedinflation(SargentandWal-lace1981)

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45 (1) 125-148 (2021)133Figure 3

Fiscal credibility loss in Colombia case (in )

CRED_LOSS Trend (HP Filter)

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2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019

Source Authors elaboration Data from the Central Bank of Colombia

Credibility is theabilityofpolicymakers to inspireconfidenceand itcanhelpformexpectationsAccordingtoMishkin(2007)inflationtargetinginanenviron-mentof lowfiscalcredibilitycausesdifficulties inmanaging inflationexpecta-tionsandimpactstheeffectivenessofmonetarypolicyHencethebaselinemodelconsideredinourempiricalanalysisisasfollows

E(πt) =β1 + β2CRED_LOSSt +α3Xt + εt (3)

whereE(πt) is the annualized inflation expectationsCRED_LOSSt is thefiscalpolicycredibilitylossXtisavectorofexplanatoryvariablesandεtistheresidualterm

To observe an initial empirical relationship between inflation expectations andfiscalcredibilitylossascatterplotforbothvariablesispresentedinfigure4ThetheoreticalintuitionofapositiverelationshipbetweenbothvariablesisconfirmedThusabetterprojectionofthefiscaldeficitcanleadtoareductionininflationexpectations

Itisimportanttoverifywhetherthepublicinformationavailableonmacroeco-nomicandfinancialvariablesistakenintoconsiderationbytheagentsForthisitis useful touse themost recent data for inflation forecasts (MankiwReis andWolfers2003)Financialmarketvolatilityaffectstheperformanceofemergingeconomiesandindirectly theformationofexpectations(KennedyandPalerm2014)FortheColombiancasetheinternationaleconomyoutlookcausesvolatil-ityincapitalflowsandthebalanceofpaymentsthatcanimpactinflationexpecta-tionsThereforeweusebehaviouroftheSampP500stockmarketindex(VIXt-1)asourfirstexplanatoryvariableforinflationexpectations

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45 (1) 125-148 (2021)

134 Figure 4Inflation expectations and fiscal credibility loss in Colombia

CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

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00 04 08 12 16 20 24 28 32


Expectationsdependonpastinformationandeachagentinterpretstheavailableinformationinadifferentway(Roberts1997)Infacttheincreaseininflationexpectations can be attributed tobackward-looking behaviour (Dornbusch andFischer1993)Thereforepast inflation(πt-1) isusedas thesecondexplanatoryvariable

Inemergingeconomiesmovementsintheexchangerateimpactmarginalcostsandinflationforecasts(CelasunGelosandPrati2004)InparticulartheColom-bianeconomyhas an importantpass-throughof the exchange rate todomesticinflationthroughitscosteffectsThusasthethirdexplanatoryvariablethepastexchangerate(et-1)isused

AccordingtotheNeo-KeynesianPhillipsCurvemodelinflationexpectationsarerelatedtotheprofitmark-upovercostsThesemark-upchangesareafunctionofthe economic cycle (Woodford 2003) Thus we useGDP (yt-1) as the fourthexplanatoryvariableforinflationexpectations

OnthebasisofOkunrsquoslawitispossibletoestablisharelationshipbetweenoutputandthelabourmarketAccordinglyasanalternativemeasureoftheeconomythepast unemployment rate is used as the fifth explanatory variable for inflationexpectations(Ut-1)

Inshorttoanalysetheeffectoffiscalcredibilityoninflationexpectationsweusedanexplanatoryvariableassociatedwithexternalrisk(VIXt-1)twomeasuresasso-ciatedwithpastprices(πt-1 et-1)andtwomeasuresassociatedwitheconomicper-formance (yt-1 Ut-1)Thepast inflationexpectationsarealso incorporatedasanexplanatoryvariable(E(πt-1)) tocapturesomeinertiainexpectationsAdummyvariable (Dt) is also added to capture the possible effect of the 2007-2008

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45 (1) 125-148 (2021)135subprimecrisisThisdummytakesavalueof1fortheyear20081Thusthepos-

siblecombinationsofthesevariablesallowustopostulatethefollowingmodels

E(πt) =α0 + α1 E(πtndash1) + α2CRED_LOSSt +α3VIXtndash1 + α4πtndash1 + α5ytndash1 + α6Dt+ εt 0(4)

E(πt) =α7 + α8 E(πtndash1) + α9CRED_LOSSt +α10VIXtndash1 + α11etndash1 + α12ytndash1 + α13Dt+ εt 1(5)

E(πt) =α14 + α15 E(πtndash1) + α16CRED_LOSSt +α17VIXtndash1 + α18πtndash1 + α19Utndash1 + α20Dt+ εt 2 (6)

E(πt) =α21 + α22 E(πtndash1) + α23CRED_LOSSt +α24VIXtndash1 + α25etndash1 + α26Utndash1 + α27Dt+ εt 3(7)

Additionallyweestimatethefullmodelwithallthevariables

E(πt) =α28 + α29 E(πtndash1) + α30CRED_LOSSt +α31VIXtndash1 + α32πtndash1 + α33ytndash1 + α34etndash1 + α35Utndash1 + α36Dt+ εt

4 (8)

Theperiodunderconsideration is from2004-1 to2019-4 (quarterlydata)ThechoiceoftheperiodisduetodataavailabilityforthefiscaldeficitexpectedwhicharenecessarytobuildthecredibilityindexSeetableA1(appendix)forthesourcesofdataanddescriptionsofallvariablesusedinthestudy

4 EMPIRICAL EVIDENCEAsinpreviousliteraturetheuseoftimeseriesdatainestimationsentailsverify-ingwhetherunitrootsexistThereforebeforecarryingouttheestimationsofallmodelstheincreasedDickey-Fullerunitroottest(ADF)thePhillips-Perrontest(PP) and theKwiatkowski-Phillips-Schmidt-Shin (KPSS) stationarity testwereperformedTheresultsarepresentedintableA3(appendix)Basedontheresultsoftheteststhevariablestobeusedinequations(4)-(8)areI(1) andhavethesameorderofintegration

AccordingtoEngleandGranger(1981)itispossibletoestimatethemodelspro-posedifthereisastationarycombinationintheseriesCointegrationtestswereperformedfortheproposedmodelThechoiceofVARlagandtheinclusionofthedeterministiccomponentsofthecointegrationvectorwasmadeonthebasisoftheSchwarz criterion (Harris 1995)The cointegration test proposed by Johansen(1991)basedonthesignificanceoftheestimatedeigenvaluesindicatestheexist-enceofacointegrationvectorinthemodels(seetableA3appendix)Thusthemodelswere estimatedwith the series in levelswithout problems of spuriousregressions

1BesidethepresentedmodelswealsoestimatedmodelswithoutputgapreplacingGDPaswellasbyinclud-ingmorelagsofinflationTheobtainedresultswerenotstatisticallysignificantandareavailableuponrequest

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45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

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45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000

Breusch-Pagan-Godfrey

test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

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45 (1) 125-148 (2021)

138 The equations abovewere estimated usingOrdinaryLeast Squares (OLS) andGeneralizedMethodofMoments (GMM) In thecaseof themodelsestimatedwith OLS tests of autocorrelation (LM test) and heteroscedasticity (Breuch-Pagan-Godfreytest)wereappliedtovalidatetheestimatesAccordingtoHansen(1982)themainreasonforusingtheGMMmethodisbecauseendogeneityandautocorrelation problems may exist which will invalidate the OLS estimatesGiventhisinGMMestimatestheinstrumentschosenwerelaggedforatleastoneperiodAccordingtoWooldridge(2001)toobtainefficientestimationswiththeGMMmethodoveridentificationrestrictionsarenecessaryInthissensetheJtestwasappliedTheestimationsofequations(4)-(8)arepresentedintable1

The results of the estimates show the expected signTheparameter associatedwithpastexpectations(E(πt-1))ispositiveandsignificantInflationexpectationspresentsomeinertiawiththeexpectationsofthepastperiodThatisthereissomeevidencethatexpectationsareadaptiveandagentslearnslowlyAsimilarresultisreportedbyMankiwReisandWolfers(2003)

Thecoefficientassociatedwithfiscalcredibilityloss(CRED LOSS)ispositiveandstatisticallysignificantinallmodelsThetheoreticalintuitionthatthefiscalpolicystancehasbeenimportant inshapinginflationexpectations isconfirmedThuswhenconfidencegrowsaboutthegovernmentrsquoscommitmenttofiscalsustainabil-ity theexpected inflationdecreasesTheevidencesupports the theoreticalper-spectiveofSargentandWallace(1981)andthefindingsconfirmthattheloweruncertaintyabouttheexpectedfiscaldeficitandthereforegreaterfiscalcredibil-ity matter for inflation expectations Similar results are reported by Kuncoro(2015)CerisolaandGeros(2009)andCelasunGelosandPrati(2004)

Withtheresultsintable1wecalculatedthatanincreaseofoneunit inCRED LOSScanboostinflationexpectationsinarangethatvariesbetween915and12Forexampleifinflationexpectationsareat3anincreaseofoneunitinCRED LOSS can increaseexpectations toa rangebetween327and3362 ThereforeaccordingtoCelasunGelosandPrati(2004)thefindingsshowthatbuildingfiscalcredibilityisrelevanttoanchoringinflationexpectations

Ontheotherhandinrelationtothecoefficientassociatedwithpastexternalrisk(VIXt-1) theestimationsshowthat theparameter isnotsignificantThisfindingsuggests that increases in global financial uncertainty do not increase inflationexpectationsinColombiaTheimportanceofpastinflation(πt-1)fortheformationofexpectationsisalsosignificantUsingtheresultsofBomfimandRudebusch(2000) it ispossible to affirm that since inflationexpectations respond topastinflationmonetary policy in Colombia is not fully credibleAccording to theresults thecoefficientassociatedwithpast inflationvariesbetween979and

2 CRED LOSSiscalculatedintheunitsinwhichthefiscaldeficitismeasuredaspercentageofGDPThere-foreanincreaseofoneunitinCRED LOSSmeansthatdeficitexpectationsare1(ofGDP)abovetheobserveddeficit

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45 (1) 125-148 (2021)1391677Thereforeifpastinflationincreasesoneunitandexpectationsareat3

theresultisthatexpectationscanmovetobetween329and350HoweverthisresultsuggeststhatinflationaryinertiahasfalleninColombiaandexpecta-tions are better anchored Some empirical studies highlight similar results foremerging economies that have adopted inflation targeting (seeCelasunGelosand Prati 2004 BevilaquaMesquita andMinella 2008 Cerisola andGeros2009Gaglianone2017)

Inthecaseoftheparameterassociatedwiththeexchangerate(et-1)thecoefficientispositiveandsignificantAccordinglydepreciation tends to increase inflationexpectations in the Colombian economy This result indirectly confirms thehypothesisthatfirmcostsaretiedtothebehaviouroftheexchangerateduetoitseffects on imported inputs However in the estimated models the estimatedparametertendstowardzerowhichindicatesthatveryhighdevaluations(above1000Colombianpesos)arenecessaryforexpectationstoincreasebymorethanonepercentagepointSimilarevidencehasbeenreportedbyBevilaquaMesquitaandMinella(2008)AraujoandGaglianone(2010)andGaglianone(2017)

Thecoefficientassociatedwiththepastbehaviouroftheeconomy(yt-1)ispositiveandstatisticallysignificantThatis inflationexpectationsfallinrecessionsandrise ineconomicbooms In thecaseof thecoefficientassociatedwith thepastunemploymentrate(Ut-1)theeconometricresultshowsthatitisalsopositiveandsignificantAccordingtoMankiwReisandWolfers(2003)inflationexpectationsarehighduringperiodsofhighunemploymentsuggestingabelatedoverreactionof expectations to the labourmarket situationWith the results of table 1 anincreaseinthepastunemploymentrateleadstoincreasesininflationexpectationsinarangebetween004and012percentagepointsTheresultsconfirmthetheo-reticalperspectiveoftheKydlandandPrescott(1977)dynamicincoherencemod-elsThesemodels indicate that increases inunemploymentcanbe theresultofattemptstosurpriseagentswithunexpectedinflationExpansivepolicycanleadtoshort-termgainsintermsofproductincreasesasthePhillipscurvepointsoutHoweveraccordingtothefindingsofIreland(1999)inthelongtermtheresultisabalanceinwhichtheinertiaofinflationexpectationsispositivelycointegratedwiththeunemploymentrateThustheevidencesuggeststhatduringtheperiodofanalysis there was no trade-off between inflation expectations inflation andunemploymentFinallythecoefficientassociatedwiththedummyvariable(Dt) is positiveandsignificantinalmostallmodelsInotherwordsthesubprimecrisisraisedinflationexpectationsinColombia

41 OLS RECURSIVE ESTIMATESItisimportanttoverifythewayinwhichtheeffectoffiscalcredibilityoninflationexpectationshasvariedover timeFor thisOLSrecursiveestimateswereper-formedonthecoefficientoffiscalcredibilityloss(CRED LOSS)estimatedinthefivemodelspresentedintable1Thestabilityovertimeoftheparametersassoci-atedwithfiscalcredibilityispresentedinfigure5

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45 (1) 125-148 (2021)

140 Ingeneraltheestimatesshowthatfortheperiodanalysedthesignsandeffectsoffiscalcredibilityoninflationexpectationswerestablebutin4ofthe5modelstheparametersdecreasedAccordingtothegraphstheparametersassociatedwiththeCRED LOSSvariabledroppedfrom20to10ThustheimpactofcredibilitywasreducedbyahalfInthe2016-2019periodtheeffectofcredibilitystabilizedandtheresultsconfirmtheimportanceoffiscalpolicyintheshapingofinflationexpectationsinColombia

Figure 5Fiscal credibility coefficient recursive estimates model 1 2 3 4 5 (in )

Recursive C(2) estimates plusmn 2 S E

-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80

plusmn 2 S ERecursive C(2) estimates

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017


5 CONCLUSIONSThisstudyanalysedtheinfluenceoffiscalcredibilityoninflationexpectationsintheColombianeconomyTheresultsallowustomakethreeobservationsFirstecono-metricestimateresultsindicatethatananchoringofexpectationsintheobservedfiscaldeficit(lowerCRED LOSS)canreduceinflationexpectationsInparticularthefindingsshowthatfiscalcredibilityshouldbemonitoredbythecentralbankin

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45 (1) 125-148 (2021)141itseffortstostabilizeexpectationsSecondpastinflationbehaviourcontinuestobe

importantindetermininginflationexpectationsThustheresultssuggestthatthereisstillagapinstrengtheningthemanagementofexpectationsinlong-termcentralbanktargetsandincorporatingforward-lookingbehaviourThirdinflationexpecta-tions in Colombia incorporate important macroeconomic information related tounemploymentGDPandexchangeratesInbrieftheempiricalevidencedevelopedinthisstudyindicatesthattostabilizeinflationexpectationsinColombiaitisneces-sarytohaveastableeconomicenvironmentandcrediblefiscalpolicy

Disclosure statementNopotentialconflictofinterestwasreportedbytheauthors

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45 (1) 125-148 (2021)

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37KydlandFandPrescottE1977RulesRatherthanDiscretiontheIncon-sistencyofOptimalPlansJournal of Political Economy85(3)pp473-492httpsdoi101086260580

38LinSandYeH2009Doesinflationtargetingmakeadifferenceindevel-oping countries Journal of Development Economics 89(1) pp 118-123httpsdoiorg101016jjdeveco200804006

39Loacutepez-Enciso E Vargas-Herrera H and Rodriacuteguez-Nintildeo N 2016 LaestrategiadeinflacioacutenobjetivoenColombiaUnavisioacutenhistoacutericaBorradores de EconomiacuteaNo952httpsdoiorg1032468be952

40Mankiw N Reis R andWolfers J 2003 Disagreement about InflationExpectations NBER Working Paper No 9796 pp 1-60 httpsdoiorg101086ma183585256

41MineaAandTapsobaR2014Doesinflationtargetingimprovefiscaldis-cipline Journal of International Money and Finance 40(1) pp 185-203httpsdoiorg101016jjimonfin201310002

42MishkinFS2007Monetary Policy StrategyTheMITPress43MishkinFSandSavastanoM2001MonetarypolicystrategiesforLatin

AmericaJournal of Development Economics66(2)pp415-444httpsdoiorg101016s0304-3878(01)00169-9

44MontesGandAccedilarT2018FiscalcredibilityanddisagreementinexpectationsaboutinflationevidenceforBrazilEconomics Bulletin38(2)pp826-843

45MontesGandSouzaI2020SovereigndefaultriskdebtuncertaintyandfiscalcredibilityThecaseofBrazilThe North American Journal of Econom-ics and Finance51(C)pp1-26httpsdoiorg101016jnajef201809009

46Moodyrsquos Investors Service 2014Moodyrsquos upgrades Colombiarsquos rating toBaa2fromBaa3outlookstableJuly(RatingActionColombia)

47NaertF2011CredibilityofFiscalPoliciesandIndependentFiscalBodiesReview of Business and Economic Literature56(3)pp288-309

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45 (1) 125-148 (2021)14548Roberts JM 1997 Is Inflation Sticky Journal of Monetary Economics

39(2)173-196httpsdoiorg101016S0304-3932(97)00017-249SargentT andWallaceN 1981 Someunpleasantmonetarist arithmetic

FederalReserveBankofMinneapolisQuarterly Review pp1-17httpsdoiorg1021034qr531

50ShirakawaM2012The Importance of Fiscal Sustainability Preconditions for Stability in the Financial System and in PricesRemarksattheBanquedeFranceFinancialStabilityReviewLaunchEventinWashingtonDCApril1-3

51StrohsalTMelnickR andNautzD 2016The time-varyingdegreeofinflation expectations anchoring Journal of Macroeconomics 48(C) pp62-71httpsdoiorg101016jjmacro201602002

52ThorntonJandVasilakisC2019Dofiscalrulesreducegovernmentbor-rowingcostsindevelopingcountriesInternational Journal of Finance and Economicspp1-12httpsdoiorg101002ijfe1771

53WoodfordM2003Interest and Prices Foundations of a Theory of Mone-tary PolicyPrincetonUniversityPress

54WooldridgeJ2001ApplicationsofGeneralizedMethodofMomentsEsti-mation Journal of Economic Perspectives 15(4) pp 87-100 httpsdoi101257jep15487

55WyploszC2005FiscaldisciplineinEMUrulesorinstitutionsNational Institute Economic Review191pp70-84

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45 (1) 125-148 (2021)

146 APPENDIX

Table a1Sources of data and description of the variablesVariable Variable description Data source

E(π)

InflationexpectationscomputedbytheCentralBankofColombiaInflationexpectationsare1yearforwardThesurveyiscalledldquoMacroeconomicProjectionsofLocalandForeignAnalystsˮDatain

CentralBankofColombia

CRED LOSSCredibilityTheindicatorwasconstructedwiththedifferencebetweentheobserveddeficitandtheexpecteddeficit

Devisedbyauthors

DEF

FiscaldeficitobservedbytheCentralNationalGovernment(GDP)-Accumulatedinthelast4quarters Datain


E(DEF)

Fiscaldeficitexpectations(GDP)ExpectationscomefromcentralbanksurveysTheforecastingdeficitistheoverallfiscaldeficitThesurveyiscalledldquoMacroeconomicProjectionsofLocalandForeignAnalystsˮDatain


πInflationaccumulatedin12monthsmeasuredbythevariationofthe consumerpriceindexDatain


e Exchangerate(monthaverage)oftheColombianpesoUnitedStatesdollar CentralBankofColombia

y

GrossdomesticproductSerieswasbuiltonrealColombiancurrencywithconstantpricesfrom2005Thevariableisseasonallyadjustedbythecentralbank Inthemodelstheserieswasusedinnaturallogarithm


U UnemploymentratewithseasonaladjustmentX12Datain CentralBankofColombia

VIX VolatilityofthestockmarketindexSampP500 FederalReserveofStLouis

D AdummyvariableThedummytakesavalueof1foryear2008and0fortherest Devisedbyauthors

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45 (1) 125-148 (2021)147Table a2

Descriptive statisticsVariable Mean Min Max SDE(π) 39455 28766 56900 07804DEF 30272 12166 46816 08691E(DEF) 24996 06500 40800 09183CRED LOSS 09798 00200 31400 07920π 43057 18464 82436 16576e 236002 176214 346201 49515U 106105 84389 142076 13231y 120552 117126 123205 01811VIX 181577 95100 441400 77106

Note E(π) DEF E(DEF) CRED LOSS π and U were used in

Table a3Unit root tests (ADF PP and KPSS)

SeriesADF PP KPSS

Lags Esp Test CV (1) Banda Esp Test CV

(1) Banda Esp Test CV (5)

E(π) 1 C -244 -354 3 N -128 -260 4 CT 016 014CRED LOSS 2 N -116 -260 1 N -161 -260 5 CT 015 014

π 1 C -315 -356 3 N -106 -260 3 CT 016 014e 0 N -065 -260 1 N -053 -260 6 CT 023 014U 0 C -286 -355 3 C -286 -355 5 C 084 046y 0 CT -175 -411 4 CT -159 -413 6 C 100 046VIX 0 C -361 -354 1 C -349 -354 5 CT 015 014

Note CV critical value Trend (T) and intercept (I) are included based on Schwarz criterion ADF ndashthe final choice of lag was made based on Schwarz criterion PP and KPSS ndash spectral estimation method is Bartlett kernel and the Newey-West Bandwidth is used

Table a4VAR lag order selection criteria (with constant)

Lag Schwarz Lag SchwarzEquation(4) Equation(5)0 881 0 14311 150 1 6742 208 2 756Equation(6) Equation(7)0 295 0 19571 -375 1 13452 -307 2 1470

Note denotes the lag order selection

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45 (1) 125-148 (2021)

148 Table a5Number of cointegrating relations by modelData trend None None Linear Linear Quadratic

Testtype NointerceptNotrend

InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend

Equation(4)trace 2 3 2 2 3




Johansenrsquos cointegration testHypNofCE(s) Eigenvalue Tracestatistic Criticalvalue(005) p-value

Equation(4)R=0 050 9673 6981 000Rle1 046 6018 4785 000R=2 031 2734 2979 009Equation(5)R=0 062 11619 7697 000Rle1 050 6587 5407 000R=2 027 2977 3519 017Equation(6)R=0 056 9552 7697 000Rle1 035 5248 5407 006Equation(7)R=0 062 10960 8880 000Rle1 042 5965 6387 010

Note Model selected by the Schwarz criterion Values based on Mackinnon Denotes the null hypothesis rejection at 5

Table a6List of GMM instruments

Model1 E(π)t-2E(π)t-3CREDLOSSt-2CREDLOSSt-3πt-2πt-3yt-4yt-5VIXt-2VIXt-3VIXt-4Dt-1

Model2 E(π)t-2E(π)t-3CREDLOSSt-2et-3et-4yt-3yt-4VIXt-2VIXt-3VIXt-4 Dt-1

Model3 E(π)t-2E(π)t-3E(π)t-4CREDLOSSt-2CREDLOSSt-3πt-2 πt-3Ut-2 VIXt-2Dt-1

Model4 E(π)t-2E(π)t-3E(π)t-4 CREDLOSSt-2CREDLOSSt-3et-2et-3Ut-2Ut-3 Ut-4VIXt-2Dt-1

Model5 E(π)t-2E(π)t-3 CREDLOSSt-2CREDLOSSt-3et-2et-3yt-4yt-5Ut-2Ut-3VIXt-2πt-2 πt-3 Dt-1

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45 (1) 125-148 (2021)

126 AbstractThis paper analyses the impact of fiscal imbalances on expectations for an emerg-ing economy with inflation targeting In particular based on the Colombian expe-rience we build a fiscal credibility index and evaluate its impact on inflation expectations for the 2004-2019 period To analyse fiscal and monetary interac-tions we propose an econometric model and use the OLS and GMM methods The results show that the loss of fiscal credibility associated with divergences between the fiscal deficit and agentsrsquo expectations can increase inflation expectations by between 9 and 12 Furthermore inflation expectations in Colombia incorpo-rate important macroeconomic information related to unemployment GDP and exchange rates

Keywords inflation expectations fiscal policy credibility

1 INTRODUCTIONTheanchoringfactors for inflationexpectationsareessential forfine-tuninganeconomicpolicyframework(MankiwReisandWolfers2003)Ininflationtar-geting expectations aremonitored by central banks because agents set pricesaccordingto their inflationforecastingTheseexpectationsaffect the long-termstructureoftheinterestratetheplannedexpenditureandthereforeinflationcon-trol(Blinderetal2008)AccordingtotheseminalcontributionsofSargentandWallace(1981)afiscalpolicystanceisrelevantforcontrollinginflationexpecta-tionsInthisregardifthepublicexpectsthatthefiscalpositionisunsustainableinflationexpectationswillnotbe lowBasedon this relativeconsensus ineco-nomic theory there is a growing and dynamic literature on the interactionsbetweenfiscalandmonetarypoliciesinemergingeconomies

PromptedbySargentandWallace(1981)somestudieshavesoughttoanalysetheempiricalandtheoreticalrelationshipbetweenfiscalvariablesandinflationexpec-tationsineconomieswithinflationtargetsFirstCataoandTerrones(2003)findthatdeficitGDPratiodownturnsproduceasignificantreductionininflationwithmore effects in countrieswith high and persistent inflationA similar result isreportedbydeMendonccedilaandMachado(2013)CelasunGelosandPrati(2004)aswell as deMendonccedila andTostes (2015) note that fiscal balance recoveriesreduceinflationexpectationsandobservedinflationOtherstudiessuchasCeri-solaandGelos(2009)suggestthattheinflationtargetpastinflationandthepri-mary fiscal balance can anchor inflation expectations in emerging economiesNonetheless Celasun Gelos and Prati (2004) provide empirical evidence thatinflationexpectationshavebackward-lookingcomponentsdespiteinflationtargetannouncementsSimilarresultsarereportedbyAraujoandGaglianone(2010)andGaglianone (2017)whohighlight that inflation expectations showpersistenceOtherperspectivesforexampleBerlemannandElzemann(2006)findthatinfla-tionexpectationsaredrivenbypresidential election results and theprobabilitythatleftistpartieswillcometopower

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45 (1) 125-148 (2021)





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45 (1) 125-148 (2021)





25

30

35

40

45

50

55

60

2004 2005 2007 2009 2011 2013 2015 20172006 2008 2010 2012 2014 2016




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45 (1) 125-148 (2021)





0

100

200

300

400

500

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019




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45 (1) 125-148 (2021)133Figure 3



00

04

08

12

16

20

24

28

32

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019







JUA

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45 (1) 125-148 (2021)


CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

25

30

35

40

45

50

55

60

00 04 08 12 16 20 24 28 32







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4 (8)





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45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

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45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

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UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS








JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





25

30

35

40

45

50

55

60

2004 2005 2007 2009 2011 2013 2015 20172006 2008 2010 2012 2014 2016




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





0

100

200

300

400

500

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)133Figure 3



00

04

08

12

16

20

24

28

32

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)


CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

25

30

35

40

45

50

55

60

00 04 08 12 16 20 24 28 32







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS









4 (8)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS








JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





25

30

35

40

45

50

55

60

2004 2005 2007 2009 2011 2013 2015 20172006 2008 2010 2012 2014 2016




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





0

100

200

300

400

500

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)133Figure 3



00

04

08

12

16

20

24

28

32

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)


CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

25

30

35

40

45

50

55

60

00 04 08 12 16 20 24 28 32







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS









4 (8)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS








JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





25

30

35

40

45

50

55

60

2004 2005 2007 2009 2011 2013 2015 20172006 2008 2010 2012 2014 2016




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





0

100

200

300

400

500

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)133Figure 3



00

04

08

12

16

20

24

28

32

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)


CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

25

30

35

40

45

50

55

60

00 04 08 12 16 20 24 28 32







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS









4 (8)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





25

30

35

40

45

50

55

60

2004 2005 2007 2009 2011 2013 2015 20172006 2008 2010 2012 2014 2016




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





0

100

200

300

400

500

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)133Figure 3



00

04

08

12

16

20

24

28

32

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)


CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

25

30

35

40

45

50

55

60

00 04 08 12 16 20 24 28 32







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS









4 (8)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





0

100

200

300

400

500

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)133Figure 3



00

04

08

12

16

20

24

28

32

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)


CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

25

30

35

40

45

50

55

60

00 04 08 12 16 20 24 28 32







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS









4 (8)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)





0

100

200

300

400

500

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)133Figure 3



00

04

08

12

16

20

24

28

32

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)


CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

25

30

35

40

45

50

55

60

00 04 08 12 16 20 24 28 32







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS









4 (8)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)133Figure 3



00

04

08

12

16

20

24

28

32

2004 20062005 20082007 2009 2010 20122011 20142013 20162015 20182017 2019







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)


CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

25

30

35

40

45

50

55

60

00 04 08 12 16 20 24 28 32







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS









4 (8)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)


CRED_LOSS (in )

Infla

tion

expe

ctat

ions

(in

)

25

30

35

40

45

50

55

60

00 04 08 12 16 20 24 28 32







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS









4 (8)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS









4 (8)





JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

136

Ta

bl

e 1

Infla

tion

expe

ctat

ions

det

erm

inan

ts in

Col

ombi

a

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Constant

08989

(02031)

[44248]

00362

(02488)

[01455]

06253

(02608)

[23970]

09408

(02767)

[33991]

06288

(03236)

[19629]

09959

(02499)

[39840]

03482

(01554)

[22405]

06309

(01903)

[33140]

09878

(01745)

[56591]

10719

(03441)

[31124]

E(π t-1

)06092

(00851)

[71545]

08396

(00593)

[141422]

03724

(01189)

[31319]

08238

(00504)

[163314]

04751

(01174)

[40448]

05825

(01077)

[54078]

07714

(00450)

[171204]

03668

(00840)

[43202]

07946

(00366)

[217099]

04685

(00597)

[78414]

CRE

D L

OSS

t

01054

(00412)

[25584]

01133

(00478)

[24474]

00947

(00402)

[23528]

01269

(00436)

[29071]

00915

(00411)

[22243]

01052

(00371)

[28319]

00959

(00317)

[30221]

00972

(00458)

[21210]

01213

(00312)

[38856]

00994

(00249)

[39793]

VIX t-1

00001

(00038)

[00315]

00033

(00044)

[07421]

00040

(00036)

[11140]

00047

(00038)

[12400]

00017

(00037)

[04600]

00003

(00021)

[01541]

00044

(00042)

[10539]

00022

(00029)

[07648]

00057

(00026)

[21536]

00004

(00024)

[01691]

π t-1

00979

(00277)

[35290]

01677

(00397)

[42245]

01334

(00408)

[32657]

01053

(00312)

[33666]

01600

(00252)

[63330]

01405

(00178)

[78799]

e t-1

00001

(660E-05)

[20913]

00003

(00001)

[19674]

00002

(00001)

[19534]

984E-05

(566E-05)

[17388]

00005

(00002)

[22540]

00001

(663E-05)

[19117]

y t-1

42515

(23130)

[18380]

52183

(26785)

[19681]

52481

(23384)

[22442]

33457

(09125)

[36661]

56147

(14500)

[38720]

36543

(09729)

[37558]

Ut-1

00969

(00427)

[22690]

00503

(00289)

[17391]

01257

(00608)

[21095]

00962

(00440)

[23806]

00472

(00185)

[25415]

00989

(00347)

[28453]

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)137

OL

SG

MM

minusHA

CD

epen

dent

var

iabl

e

E(π

)M

odel

(1)

Mod

el (2

)M

odel

(3)

Mod

el (4

)M

odel

(5)

Mod

el (1

)M

odel

(2)

Mod

el (3

)M

odel

(4)

Mod

el (5

)

Dt

08585

(01993)

[43064]

-02435

(02559)

[-09517]

08723

(01858)

[46937]

09731

(02023)

[48087]

09283

(01967)

[47174]

09354

(03533)

[26475]

02069

(03345)

[06163]

07943

(02019)

[35744]

10797

(03648)

[33984]

11167

(03112)

[35882]

R2 ad

j091

087

092

091

092

091

085

089

089

091

F-statistic

8705

6583

10759

9742

3557

Prob(F-Stat)

000

000

000

000

000

LMtest(1)

093

139

204

137

2151

p-value(LMTest)

040

025

014

026

000


test

060

096

067

139

179

p-value(B-P-Gtest)

072

046

066

023

014

J-statistic

487

521

239

850

379

Prob(J-stat)

056

039

066

020

070

Instruments

13

12

11

13

15

NinstrNobs

020

019

017

020

023

Not

e M

argi

nal s

igni

fican

ce le

vels

(

) d

enot

es 0

01

()

den

otes

00

5 a

nd (

) den

otes

01

0 S

tand

ard

erro

rs a

re in

par

enth

eses

and

t-st

atis

tics i

n br

acke

ts P

(F-s

tatis

tic)

repo

rt th

e re

spec

tive

p-va

lue

of th

e F-

test

P(J

-sta

tistic

) rep

ort t

he re

spec

tive

p-va

lued

of t

he J

-test

The

list

of G

MM

inst

rum

ents

are

pre

sent

ed in

tabl

e A6

(app

endi

x)

JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)







JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)




-05

00

05

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-10

0

10

20

30

40

50

60

70

80


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-10

0

10

20

30

40

50


-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017



JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS




JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS


















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

















JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS










JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)

146 APPENDIX


E(π)




Devisedbyauthors

DEF



E(DEF)






y






JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)147Table a2




SeriesADF PP KPSS









JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














JUA

N C

AM

ILO A

NZO

AacuteTEG

UI-ZA

PATA JU

AN

CA

MILO

GA

LVIS-C

IRO

EFFEC

TS OF FISC

AL R

EDIB

ILITY O

N IN

FLATION

EXPEC

TATION

S EV

IDEN

CE FR

OM

AN

EMER

GIN

G EC

ON

OM

Y

PUB

LIC SECTO

R EC

ON

OM

ICS

45 (1) 125-148 (2021)



InterceptNoTrend

InterceptNotrend

Intercepttrend

Intercepttrend














Effects of fiscal credibility on inflation expectations: evidence ...2021/01/04 · trol (Blinder...

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Transcript of Effects of fiscal credibility on inflation expectations: evidence ...2021/01/04 · trol (Blinder...