Our understanding of inflation expectations is that they are a mix of forward-looking and backward-looking views. Expectations are sometimes dismissed as completely backward looking, and therefore of no real value to policymakers. This is incompatible with the evidence. After all, the oil shock lowered inflation to 4.6% in 2015, yet even as short term expectations adjusted, longer term expectations didn’t move lower.
Chart 9  Real Growth of the Colombian Financial System Loans  25,0%  20,0%  %  15,0%  10,0%  5,0%  0,0%  Local Banks  Foreign Banks  4/08/2009  4/07/2009  4/06/2009  4/05/2009  4/04/2009  4/03/2009  4/02/2009  4/01/2009  4/12/2008  4/11/2008  4/10/2008  4/09/2008  4/08/2008  4/07/2008  4/06/2008  4/05/2008  4/04/2008  4/03/2008  4/02/2008  4/01/2008  -5,0%  Total  * Deflated by CPI ex - food  BIS Review 102/2009  7  Chart 10  Lending-Deposit Interest Rate Spreads 2008 900 850  Basis Points  800 750 700 650 600 550  Average Lending Rate - Deposit Rate  19-Dic-08  05-Dic-08  21-Nov-08  07-Nov-08  24-Oct-08  10-Oct-08  26-Sep-08  12-Sep-08  29-Ago-08  15-Ago-08  18-Jul-08  01-Ago-08  04-Jul-08  20-Jun-08  06-Jun-08  23-May-08  25-Abr-08  09-May-08  11-Abr-08  28-Mar-08  14-Mar-08  29-Feb-08  15-Feb-08  01-Feb-08  18-Ene-08  04-Ene-08  500  Corporate Treasury Rate - Deposit Rate  Prime Lending Rate - Deposit Rate  Chart 11  Observed and Expected Tightening of Requirements for New Bank Commercial Loans Approval (Survey) (% of Respondents) 80,0% 70,0% 60,0% 50,0% 40,0% 30,0% 20,0% 10,0%  Observed  8  Sep‐09  Ago‐09  Jul‐09  Jun‐09  May‐09  Abr‐09  Mar‐09  Feb‐09  Ene‐09  Dic‐08  Nov‐08  Oct‐08  Sep‐08  Ago‐08  Jul‐08  Jun‐08  May‐08  Abr‐08  0,0%  Expected (previous quarter survey)  BIS Review 102/2009  Chart 12  External Indebtedness through the Financial System: Stock and interest Rate 3.500,0  6,50  3.300,0  6,00  3.100,0  5,50 5,00  2.700,0 4,50 2.500,0 4,00 2.300,0  Interest Rate (%)  Stock $ Million)  2.900,0  3,50  2.100,0  3,00  1.900,0  2,50  1.700,0 1.500,0  2,00 Ene  Feb  Mar  Abr  May  Jun  Jul  Ago  Sep  Oct  Nov  Dic  Ene  Feb  Mar  2008  Abr  May  Jun  2009 Stock  Interest Rate  Chart 13  External Credit Lines of the Colombian Financial System Approved Amounts and Use 9.000 8.000 7.000  $ Million  6.000 5.000 4.000 3.000 2.000  Jun  Abr  May  Feb  Mar  Dic  Ene  Oct  Nov  Sep  Jul  Ago  Jun  Abr  2008 Approved Amount  BIS Review 102/2009  May  Feb  2007  Mar  Dic  Ene  Oct  Nov  Sep  Jul  Ago  Jun  Abr  May  Feb  Mar  Ene  1.000  2009  Use (Stock)  9  Chart 14  3.500,0  4.800  3.300,0  4.600  3.100,0  4.400  2.900,0  4.200  2.700,0  4.000  2.500,0  3.800  2.300,0  3.600  2.100,0  3.400  1.900,0  3.200  1.700,0  3.000  1.500,0  E x te rn a l In d e b te d n e s s  5.000  2 0 0 7 -0 1 2 0 0 7 -0 2 2 0 0 7 -0 3 2 0 0 7 -0 4 2 0 0 7 -0 5 2 0 0 7 -0 6 2 0 0 7 -0 7 2 0 0 7 -0 8 2 0 0 7 -0 9 2 0 0 7 -1 0 2 0 0 7 -1 1 2 0 0 7 -1 2 2 0 0 8 -0 1 2 0 0 8 -0 2 2 0 0 8 -0 3 2 0 0 8 -0 4 2 0 0 8 -0 5 2 0 0 8 -0 6 2 0 0 8 -0 7 2 0 0 8 -0 8 2 0 0 8 -0 9 2 0 0 8 -1 0 2 0 0 8 -1 1 2 0 0 8 -1 2 2 0 0 9 -0 1 2 0 0 9 -0 2 2 0 0 9 -0 3 2 0 0 9 -0 4 2 0 0 9 -0 5 2 0 0 9 -0 6  T ra d e  Total Trade (X+M) Subject to Foreign Finance and External Indebtedness through the Financial System $ Million)  Trade  External Indebtedness  Meanwhile, the global economy slumped, terms of trade dropped and the external demand for Colombian products slowed down.