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Abstract

We estimate inflation expectations for several Latin American countries using an affine model that takes as factors the observed inflation and the parameters generated from zero-coupon yield curves of nominal bonds. By implementing this approach, we avoid the use of inflation-linked securities, which are scarce and less liquid in many of these markets, and obtain market measures of inflation expectations free of any risk premium, eliminating potential biases included in other measures such as breakeven rates. We find that inflation expectations in the long-run are fairly anchored in Chile and Mexico, while those in Brazil and Colombia are more volatile and less anchored. We also find that expected inflation increases at longer horizons in Brazil and Chile, while it is decreasing in Colombia and Mexico.