Using a small-scale semi-structural model for projections: some considerations

This article examines a small-scale, semi-structural model oriented to macroeconomic forecasting in the Peruvian economy, with a particular focus on the inflation targeting framework. The research is motivated by the need for appropriate tools to aid central banks in making monetary policy decisions. A set of endogenous and exogenous variables is used over a 2- to 3-year forecast horizon to simulate the effect of monetary policy on inflation and economic activity. The results show that setting interest rates according to a policy rule can effectively guide central bank decisions, revealing that forecasts under constant rates can induce anomalies in the exchange rate and in inflation expectations. The study highlights the importance of communicating forecasts and policy decisions, suggesting that prudent management of these forecasts is crucial for maintaining economic stability and meeting the established inflation target. (Abstract and audio: Department of Economic Publications)