Academic literature on the topic 'Real stimuli'

Psychophysical studies have revealed that retinal and depth periphery play a dominant role in activating vection, or visually induced sensation of self-motion. But since abstract stimuli such as random-dot patterns and vertical stripes have been used in these studies, the results are not always applicable for designing more realistic visual displays in real-world applications. Indeed, it has been shown that for human orientation, a real-world display is more effective than an abstract one (Howard and Childerson, 1994 Perception23 753 – 762). We investigated how vection was controlled by the peripheral part of a stimulus consisting of a real-world display. Stereoscopic and nonstereoscopic video clips were taken through a windshield while driving on (i) a straight, (ii) a gradually curved, and (iii) a sharply curved road at slow and fast speeds. Vection was measured with these stimuli which were presented on a 63 deg wide and 38 deg high video projection monitor. The results showed that although the stereoscopic display generally activated more forward and sideways vection than the nonstereoscopic one, the difference was barely statistically significant. When only the central 18 deg diameter of the display was presented, similar vection was activated as with a full field display. When the central 40 deg diameter of the display was occluded, vection did not change significantly, though observers found difficulty in assessing the direction of self-motion. It is concluded that retinal and depth periphery of real-world stimuli do not play a significant role in activating vection.

Psychophysical studies have revealed that the retinal periphery plays a dominant role in inducing vection, ie the visually induced sensation of self-motion. This suggests that the quality of the visual stimulus is not an important factor for vection. However, since abstract stimuli were used in these studies, it is not clear whether the quality of real-world visual stimuli could still play a critical role in inducing vection. We investigated how vection induced by real-world visual stimuli was affected when the stimuli were spatially or temporally degraded. Stereoscopic video clips were taken through the windshield of a car driven on a sharply curved and hilly road. These clips were degraded spatially by using a mosaic effect, or temporally by using a strobe effect on a video editing system. The perceived direction and strength of vection were measured while subjects were viewing these visual stimuli presented on a 63 deg wide and 38 deg high video projection monitor. Degradation of the visual stimuli was found to have little effect on the assessment of direction in horizontal vection. Assessment of the direction of vertical vection, however, was significantly disturbed by both spatial and temporal degradation of the stimuli. Temporal degradation reduced the strength of vection significantly for both horizontal and vertical motion. In contrast, although spatial degradation of visual stimuli reduced the strength of vection in both dimensions slightly, the effect was not statistically significant. We conclude that the spatial quality of real-world visual stimuli does not play a significant role in inducing vection.

The spatial and temporal characteristics of mechanisms that bridge gaps between line segments were determined. The presentation time that was necessary for localisation and identification of a triangular shape made up of pacmen, pacmen with lines, lines, line segments (corners), or pacmen with circles (amodal completion) was measured. The triangle was embedded in a field of distractors made up of the same components but at random orientations. Subjects had to indicate whether the triangle was on the left or on the right of the display (localisation) and whether it was pointing upward or downward (identification). Poststimulus masks consisted of pinwheels for the pacmen stimuli or wheels defined by lines. Stimuli were presented on a grey background and defined by luminance or isoluminant contrast. Thresholds were fastest when the triangle was defined by real contours, as for the pacmen with lines (105 ms) and the lines only (92 ms), slightly slower for corners (118 ms) and pacmen (136 ms), and much slower for the amodally completed pacmen (285 ms). For all inducer types localisation was about 20 ms faster than identification. In a second experiment the relative length of the gap between inducers was varied. Thresholds increased as a function of gap length, indicating that the gaps between the inducers need to be interpolated. There was no significant difference in the speed of this interpolation process between the pacman stimuli and the line-segment stimuli. About 40 ms were required to interpolate 1 deg of visual angle, corresponding to about one third of the distance between inducers. In a third experiment, it was found that processing of isoluminant stimuli was as fast as for low-contrast luminance stimuli, when targets were defined by real contours (lines), but much slower for illusory contours (pacmen). The conclusion is that the time necessary to interpolate a contour depends greatly on the spatial configuration of the stimulus. Since interpolation is faster for the line-segment stimuli, which do not elicit the percept of an illusory contour, the interpolation process seems to be independent of the formation of illusory contours.

When rotating stripes or other periodic stimuli cross the retina at a critical rate, a reversal in the direction of motion of the stimuli is often seen. This illusion of motion perception was used to explore the roles of retinal and perceived motion in the generation of optokinetic nystagmus. Here we show that optokinetic nystagmus is disrupted during the perception of this illusion. Thus, when perceived and actual motion are in conflict, subjects fail to track the veridical movement. This observation suggests that the perception of motion can directly influence optokinetic nystagmus, even in the presence of a moving retinal image. A conflict in the neural representation of motion in different brain areas may explain these findings.

The purpose of this work was to study the real-time changes of the optical properties of the eye with accommodation in subjects with symptoms of accommodative disorders. From ocular aberrations, it is possible to compute several parameters like the response and lag of accommodation. The ocular aberrations were measured in 4 subjects, with different accommodative disorders, during several cycles of accommodation/disaccommodation and for different accommodative stimuli. The measurement was done continuously and in real time during different accommodative stimuli. It was possible to see the changes in accommodative response during the several stimuli of accommodation. Subjects with accommodative disorders showed different accommodative responses. The use of wavefront ocular aberrations can be a tool to diagnose accommodative disorders. In some subjects with complaints, this method showed irregularities even when the results of the usual clinical exams were normal.

The auditory steady-state response (ASSR) is advantageous against other hearing techniques because of its capability in providing objective and frequency specific information. The objectives are to reduce the lengthy test duration, and improve the signal detection rate and the robustness of the detection against the background noise and unwanted artefacts.Two prominent state estimation techniques of Luenberger observer and Kalman filter have been used in the development of the autonomous ASSR detection scheme. Both techniques are real-time implementable, while the challenges faced in the application of the observer and Kalman filter techniques are the very poor SNR (could be as low as −30dB) of ASSRs and unknown statistics of the noise. Dual-channel architecture is proposed, one is for the estimate of sinusoid and the other for the estimate of the background noise. Simulation and experimental studies were also conducted to evaluate the performances of the developed ASSR detection scheme, and to compare the new method with other conventional techniques. In general, both the state estimation techniques within the detection scheme produced comparable results as compared to the conventional techniques, but achieved significant measurement time reduction in some cases. A guide is given for the determination of the observer gains, while an adaptive algorithm has been used for adjustment of the gains in the Kalman filters.In order to enhance the robustness of the ASSR detection scheme with adaptive Kalman filters against possible artefacts (outliers), a multisensory data fusion approach is used to combine both standard mean operation and median operation in the ASSR detection algorithm. In addition, a self-tuned statistical-based thresholding using the regression technique is applied in the autonomous ASSR detection scheme. The scheme with adaptive Kalman filters is capable of estimating the variances of system and background noise to improve the ASSR detection rate.

This thesis explores the field of light, space and human perception. Human perception is an active, information-seeking process, but when this information is not clear our mind tries to fool us by filling the emptiness. This unclear structure is also called the Ganzfeld effect. When being exposed to the Ganzfeld effect hallucinations may occur. The experiment set up for this thesis was to see if a stimulus of light could be used to prevent the mind drifting off into hallucinations and keeping a clear understanding of the space. Based on previous literature research two experiments were set up. In the first experiment I expored myself how the Ganzfeld in nature affected me. In the second experiment six participants including myself experienced the Ganzfeld effect combined with a low light stimulus.  This thesis concludes that an exposure to the Ganzfeld effect in combination with a low light stimulus prevents from complete hallucinations. When using a light stimulus an inbetween world is created. A clear description of this reality in spatial terms was attempted. Without the light stimulus the mind was able to drift off and went into an unreal world. When a light stimulus was given, the mind went back to the real and the space could be clearly understood.

The mammalian visual system has a remarkable capacity of processing a large amount of information within milliseconds under widely varying conditions into invariant representations. Recently a model of the primary visual system exploited the unique feature of dense local excitatory connectivity of the neo-cortex to match these criteria. The model rapidly generates invariant representations integrating the activity of spatially distributed modeled neurons into a so-called Temporal Population Code (TPC). In this thesis, we first investigate an issue that has persisted TPC since its introduction: to extend the concept to a biologically compatible readout stage. We propose a novel neural readout circuit based on wavelet transform that decodes the TPC over different frequency bands. We show that, in comparison with pure linear readouts used previously, the proposed system provides a robust, fast and highly compact representation of visual input. We then generalized this optimized encoding-decoding paradigm to deal with a number of robotics application in real-world tasks to investigate its robustness. Our results show that complex stimuli such as human faces, hand gestures and environmental cues can be reliably encoded by TPC which provides a powerful biologically plausible framework for real-time object recognition. In addition, our results suggest that the representation of sensory input can be built into a spatial-temporal code interpreted and parsed in series of wavelet like components by higher visual areas.
El sistema visual dels mamífers té una remarcable capacitat per processar informació en intervals de temps de mili-segons sota condicions molt variables i adquirir representacions invariants d'aquesta informació. Recentment un model del còrtex primari visual explota les característiques d'alta connectivitat excitatriu local del neocortex per modelar aquestes capacitats. El model integra ràpidament l'activitat repartida espaialment de les neurones i genera codificacions invariants que s'anomenen Temporal Population Codes (TPC). Aquí investiguem una qüestió que ha persistit des de la introducció del TPC: estudiar un procés biològicament possible capaç de fer la lectura d'aquestes codificacions. Nosaltres proposem un nou circuit neuronal de lectura basat en la Wavelet Transform que decodifica la senyal TPC en diferents intervals de freqüència. Monstrem que, comparat amb lectures purament lineals utilitzades previament, el sistema proposat proporciona una representació robusta, ràpida i compacta de l'entrada visual. També presentem una generalització d'aquest paradigma de codificació-decodificació optimitzat que apliquem a diferents tasques de visió per computador i a la visió dins del context de la robòtica. Els resultats del nostre estudi suggereixen que la representació d'escenes visuals complexes, com cares humanes, gestos amb les mans i senyals del medi ambient podrien ser codificades pel TPC el qual es pot considerar un poderós marc biològic per reconeixement d'objectes en temps real. A més a més, els nostres resultats suggereixen que la representació de l'entrada sensorial pot ser integrada en un codi espai-temporal interpretat i analitzat en una serie de components Wavelet per àrees visuals superiors.

Este trabalho descreve as pesquisas e desenvolvimentos em instrumentação eletrônica computacional, realizados para viabilizar experiências na área de neurobiofísica, tendo como objetivos principais a geração de estímulos visuais para invertebrados e a captação de sinais eletrofisiológicos gerados por sistemas biológicos sensoriais submetidos a estímulos. Trata-se de um conjunto de equipamentos que, operando de maneira integrada, são capazes de fornecer e sincronizar estímulos, realizar a aquisição dos dados de sinais neurais a serem utilizados para controle e análise em experiências in vivo\" nos estudos da visão de invertebrados no Laboratório de Neurobiofísica - DipteraLab do IFSC. A integração desta instrumentação eletrônica visa facilitar a sua utilização durante os experimentos, permitindo o acompanhamento das aquisições de dados neurais, viabilizando a realização de experimentos com alterações dos estímulos através de realimentação em tempo real.
This work describes the research and development of computational instrumentation to be used in experimental neurobiophysics. The developed electronic modules operate in an integrated manner and are used to generate visual stimuli for invertebrates and capture electrophysiological signals generated by biological systems subjected to sensory stimuli. They are able to provide synchronized stimuli and perform data acquisition of neural signals events to be used for control and analysis of vision experiments with invertebrates at the Laboratory of Neurobiophysics Dipteralab Laboratory, at the IFSC. The integration of electronic instrumentation facilitate its use during experiments allowing, through its monitoring capabilities of the neural data acquisition, the realization of experiments with real time stimuli changes through feedback. The possibility to perform pre-analyses of neural responses in behavioral closed loop experiments is also implemented.

La guerra è evento, tema, topos che più di ogni altro induce la fiction – stimolando, si direbbe, istanze superegoiche di fedeltà storica – a premere sui propri confini, inibire lo spazio dell’invenzione e confondersi con forme di scrittura non finzionali (memorialistica, diario, reportage…). Ma in che modo e in che misura la sua rappresentazione letteraria (e teatrale, cinematografica, a fumetti…) è mutata – in quanto a tono e strategie, a grado di deformazione del reale noto e condiviso – nello spazio di un secolo che ha visto trasformate anche le strategie belliche, la copertura mediatica e di conseguenza l’immaginario collettivo legato ai conflitti? Il volume pensato e curato da Nicola Turi, mentre approfondisce in relazione al tema singoli percorsi d’autore noti e meno noti, italiani e non (da Leopardi a Zanzotto, da Gadda a Calvino, da Salsa a Dessí, da Luzi e Fenoglio fino a Leavitt, Eisner e Celestini), stimola ed elabora una riflessione profonda sullo smarrimento e la naturale attrazione del gesto artistico (di volta in volta all’insegna dell’ironia feroce, della disperata incredulità, dell’elegiaca testimonianza) per il male, il dolore, il marziale stravolgimento del contesto umano, sociale e politico.

Since its introduction in 1889, the Müller-Lyer illusion has incited numerous studies and explanations. Most rely on two-dimensional stimuli such as line drawings, subject to the criticism that illusions are restricted to impoverished, artificial stimuli and have little relevance to understanding of ordinary perception. The three-dimensional Müller-Lyer illusion occurs with familiar solid objects and moving observers and has been used to evaluate misapplied constancy theories, perception–action dissociations, and level of processing. The occurrence of illusions in real-world contexts, and in two-dimensional displays upon which people rely increasingly, makes them essential to understand and predict. The three-dimensional Müller-Lyer illusion has significant theoretical and practical implications and continues to be an important concern for visual science.

The aftereffect of motion is one of the oldest known illusions. It refers to the illusory motion of a stationary scene after some time of adaptation to real motion. While it is still unknown whether this adaptation effect has any functional value, it surely has served well as a tool to investigate the functional organization of the visual system. In this chapter some of the classic findings are discussed. More recent work using complex stimuli, attentional modulation, higher order motion, as well as modern neuro-imaging techniques has provided vision scientists with surprising new insights. Discussion of the related concepts of motion perception, motion transparency, and interocular transfer are included.

This article focuses on musically relevant psychological aspects of prenatal development: the development of perception, cognition, and emotion; the relationships between them; and the musical and musicological implications of those relationships. It begins by surveying relevant foetal sensory abilities: hearing, the vestibular sense of balance and acceleration, and the proprioceptive sense of body orientation and movement. All those senses are relevant for musical development, since in all known cultures music is inseparable from bodily movement and gesture, whether real or implied. The article then considers what sounds and other stimuli are available to the foetus: what patterns are the earliest to be perceptually learnt? It examines psychological and philosophical issues of foetal attention, ‘consciousness’, learning, and memory. The article closes with speculations about the possible role of prenatal development in the phylogeny of musical behaviours.

This chapter provides a systematic overview of the diagnostic and prognostic value of electroencephalography (EEG) in adult patients with different types of encephalopathies in association with metabolic, toxic, and epileptic disorders. Most encephalopathies present with a fluctuating course characterized by typical but not pathognomonic symptoms such as cognitive impairment, altered mental status or confusion, lethargy, decreased or rarely increased motor activity, and disturbed sleep/wake cycles. EEG enables rapid, bedside electrophysiological monitoring, providing dynamic real-time information on the integrity of neocortical brain activity. Hence, EEG complements clinical and neuroimaging assessments of encephalopathic patients. Progressive slowing of EEG background activity with increasing cerebral dysfunction, emergence of intermittent transients, electrographic seizures, and impaired background reactivity to external stimuli all provide important diagnostic and prognostic information to guide medical management.

Vascular tone of glomerular blood vessels is controlled dynamically in response to a number of stimuli of which tubuloglomerular feedback and blood flow (and glomerular filtration rate) autoregulation are the most prominent. Both tubuloglomerular feedback- and myogenic-mediated pre-glomerular vasoconstriction are important in the response to reduced pressure. The renal myogenic mechanism, which has the potential to adjust steady-state tone in response to the oscillating systolic pressure signal, additionally plays an essential role in protecting the kidney from the damaging effects of hypertension.

Real and virtual are often considered terms in reciprocal opposition, but the boundaries between the two are blurred. The main goal of our study consists in answering the question whether the presence of a third dimension (3D) is a fundamental step of the virtual toward the real world, and if it causes some difference in the neural activity of the spectator [8]. Also, the possibility to consider real what is virtual will be discussed [6, 7].

AbstractThe world is facing the problem of anthropogenic climate change and air pollution. Despite many years of development, already established methods of influencing behaviour remain ineffective. The effect of such interventions is very often a declaration of behaviour change that is not followed by actual action. Moreover, despite intensive information campaigns, many people still do not have adequate knowledge on the subject, are not aware of the problem or, worse, deny its existence. Previous attempts to introduce real change were based on providing information, persuasion or visualisation. We propose the use of multi-sensory virtual reality to investigate the problem more thoroughly and then design appropriate solutions. In this paper, we introduce a new immersive virtual environment that combines free exploration with a high level of experimental control, physiological and behavioural measures. It was created on the basis of transdisciplinary scientific cooperation, participatory design and research. We used the unique features of virtual environments to reverse and expand the idea of pollution pods by Pinsky. Instead of closing participants in small domes filled with chemical substances imitating pollution, we made it possible for them to freely explore an open environment - admiring the panorama of a small town from the observation deck located on a nearby hill. Virtual reality technology enables the manipulation of representations of air pollution, the sensory modalities with which they are transmitted (visual, auditory, tactile and smell stimuli) and their intensity. Participants’ reactions from the initial tests of the application showed that it is a promising solution. We present the possibilities of applying the new solution in psychological research and its further design and development opportunities in collaboration with communities and other stakeholders in the spirit of citizen science.

Abstract Design activity can be supported using inspirational stimuli (e.g., analogies, patents, etc.), by helping designers overcome impasses or in generating solutions with more positive characteristics during ideation. Design researchers typically generate inspirational stimuli a priori in order to investigate their impact. However, for a chosen stimulus to possess maximal utility, it should automatically reflect the current and ongoing progress of the designer. In this work, designers receive computationally selected inspirational stimuli midway through an ideation session in response to the state of their current solution. Sourced from a broad database of related example solutions, the semantic similarity between the content of the current design and concepts within the database determine which potential stimulus is received. Designers receive a particular stimulus based on three experimental conditions: a semantically near stimulus, a semantically far stimulus, or no stimulus (control). Results indicate that adaptive inspirational stimuli can be determined using Latent Semantic Analysis (LSA) and that semantic similarity measures are a promising approach for real-time monitoring of the design process. The ability to achieve differentiable near vs. far stimuli was validated using both semantic cosine similarity values and participant self-response ratings. As a further contribution, this work also explores the impact of different types of adaptive inspirational stimuli on design outcomes. Here, near inspirational stimuli increase the feasibility of design solutions. Results also demonstrate the significant impact of the overall inspirational stimulus innovativeness on final design outcomes, which may be greater than differences across individual sub-dimensions.

Introduction. The simulators are designed for human-machine systems operator training process. It is more appropriate to estimate current operator efficiency and the operator professional readiness level for operator training process effectiveness. Operator functional state monitoring during training process is useful for detection of operator efficiency decreasing. The biofeedback based of operator functional state monitoring can increase operator training process effectiveness. The work is concern with different approaches to development of simulators for human-machine systems incorporated with biofeedback based of operator functional state monitoring.Hypothesis. The work targeted to experimental validation of hypothesis that biofeedback can significantly increase operator training process effectiveness.Aim. The aim of the work is to select features are used for operator efficiency estimation, and to formalize the concept of operator task complexity.Methods. The measurement procedure is viewed as computer simulator. Simulation consists of functional tests series step by step from low complexity level to high complexity level. There are reach stimuli represented by geometric figures. Each figure is characterized by color, shape, size and method of appearance on the screen. Simple stimulus leads to simple operator deeds, but complicate stimulus leads to complicate operator deeds. Each complicate stimulus can be represented as sequence of elementary stimuli. The set of permissible figures and permissible appearance methods are the description of simulation structure. Each functional test is to presentation of fixed complexity level stimuli. The basic features are used for operator efficiency estimation are: reaction speed and reaction exactness. These parameters objectively decrease as a result of stimulus complexity level increasing. Accordingly, there are more sophisticated features such as tiredness degree and operator functional limit.Discussion. The work is concern with measurement experiment is used for operator efficiency estimation. There are some features such as: reaction speed, reaction exactness, tiredness degree and operator functional limit. These parameters demonstrate a strong variability. Accordingly, we need investigate influence of figures characteristics to measurement experiment results individually for each operator. So, there is requires implementation additional psychology tests (for each operator) and comparison their results with computer simulation. Different methods of stimuli formation for the solving this problem are consider and investigate. The question is required by particular consideration is: can we represent the sequence of simple stimulus as complicate stimulus. Biofeedback introduction to simulation leads to possibility of selection of individual complexity level for each operator, and detection of individual functional limit for each operator. Furthermore, biofeedback guarantees robust operator efficiency estimation. Also, biofeedback can help operator to increase his concentration, and increase operator training process effectiveness.Conclusions. Human-machine systems operator efficiency estimation is need for increase the level his functional readiness to prevent critical cases in real world. The technique of operator efficiency estimation is proposed and proved in the paper. Stimuli are described and formalized. The preliminary measurement experiment results are represented. The future considerations linked with more complicated simulators, which can simulate some real world tasks. Also, there is an interest in clarification of biofeedback role in increasing of operator training process effectiveness.

Historically, the aversive response of humans and other mammals to bitter-taste substances has been useful for survival, since many toxic constituents taste bitter. Today, the range of foods available is more diverse. Many bitter foods are not only safe for consumption but contain bitter constituents that provide nutritional benefits. Despite this, these foods are often eliminated from our current diets because of their unacceptable bitterness. Extensive technology has been developed to remove or mask bitterness in foods, but a lack of understanding of the mechanisms of bitterness perception at the taste receptor level has prevented the development of inhibitors or efficient methods for reducing bitterness. In our original application we proposed to: (a) investigate the time course and effect of selected bitter tastants relevant to agricultural products on the formation of intracellular signal molecules (cAMP, IP3, Ca2+) in intact taste cells, in model cells and in membranes derived therefrom; (b) study the effect of specific bitter taste inhibitors on messenger formation and identify G-proteins that may be involved in tastant-induced bitter sensation; (c) investigate interactions and self-aggregation of bitter tastants within membranes; (d) study human sensory responses over time to these bitter-taste stimuli and inhibitors in order to validate the biochemical data. Quench-flow module (QFM) and fast pipetting system (FPS) allowed us to monitor fast release of the aforementioned signal molecules (cGMP, as a putative initial signal was substituted for Ca2+ ions) - using taste membranes and intact taste cells in a time range below 500 ms (real time of taste sensation) - in response to bitter-taste stimulation. Limonin (citrus) and catechin (wine) were found to reduce cellular cAMP and increase IP3 contents. Naringin (citrus) stimulated an IP3 increase whereas the cheese-derived bitter peptide cyclo(leu-Trp) reduced IP3 but significantly increased cAMP levels. Thus, specific transduction pathways were identified, the results support the notion of multiple transduction pathways for bitter taste and cross-talk between a few of those transduction pathways. Furthermore, amphipathic tastants permeate rapidly (within seconds) into liposomes and taste cells suggesting their availability for direct activation of signal transduction components by means of receptor-independent mechanisms within the time course of taste sensation. The activation of pigment movement and transduction pathways in frog melanophores by these tastants supports such mechanisms. Some bitter tastants, due to their amphipathic properties, permeated (or interacted with) into a bitter tastant inhibitor (specific phospholipid mixture) which apparently forms micelles. Thus, a mechanism via which this bitter taste inhibitor acts is proposed. Human sensory evaluation experiments humans performed according to their 6-n-propyl thiouracil (PROP) status (non-tasters, tasters, super-tasters), indicated differential perception of bitterness threshold and intensity of these bitter compounds by different individuals independent of PROP status. This suggests that natural products containing bitter compounds (e.g., naringin and limonin in citrus), are perceived very differently, and are in line with multiple transduction pathways suggested in the biochemical experiments. This project provides the first comprehensive effort to explore the molecular basis of bitter taste at the taste-cell level induced by economically important and agriculturally relevant food products. The findings, proposing a mechanism for bitter-taste inhibition by a bitter taste inhibitor (made up of food components) pave the way for the development of new, and perhaps more potent bitter-taste inhibitors which may eventually become economically relevant.

For most Caribbean countries, the COVID-19 pandemic will translate into the deepest single-year contraction of real GDP on record in 2020. With the exception of Guyana, countries have experienced deep recessions, severe increases in unemployment, and long-lasting damage to many corporate and household balance sheets. The social consequences of the crisis continue to mount, and despite governments best efforts to buffer the shock to families, enterprises, and domestic markets, there remains a dire need for continued and more broad-based stimulus to ensure that economic capital both human and other wise remains intact. This edition of the Caribbean Quarterly Bulletin briefly reflects on notable economic developments in 2020, then shifts to longer-term issues, including a summary of an upcoming IDB publication, Economic Institutions for a Resilient Caribbean, as well as summaries of the book's key diagnostics and recommendations for each country. In some cases, country sections focus on specific areas of institutional reforms. For example, the Suriname section focuses on fiscal institutions, given the public debt distress there.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.

In the second quarter, annual inflation (9.67%), the technical staff’s projections and its expectations continued to increase, remaining above the target. International cost shocks, accentuated by Russia's invasion of Ukraine, have been more persistent than projected, thus contributing to higher inflation. The effects of indexation, higher than estimated excess demand, a tighter labor market, inflation expectations that continue to rise and currently exceed 3%, and the exchange rate pressures add to those described above. High core inflation measures as well as in the producer price index (PPI) across all baskets confirm a significant spread in price increases. Compared to estimates presented in April, the new forecast trajectory for headline and core inflation increased. This was partly the result of greater exchange rate pressure on prices, and a larger output gap, which is expected to remain positive for the remainder of 2022 and which is estimated to close towards yearend 2023. In addition, these trends take into account higher inflation rate indexation, more persistent above-target inflation expectations, a quickening of domestic fuel price increases due to the correction of lags versus the parity price and higher international oil price forecasts. The forecast supposes a good domestic supply of perishable foods, although it also considers that international prices of processed foods will remain high. In terms of the goods sub-basket, the end of the national health emergency implies a reversal of the value-added tax (VAT) refund applied to health and personal hygiene products, resulting in increases in the prices of these goods. Alternatively, the monetary policy adjustment process and the moderation of external shocks would help inflation and its expectations to begin to decrease over time and resume their alignment with the target. Thus, the new projection suggests that inflation could remain high for the second half of 2022, closing at 9.7%. However, it would begin to fall during 2023, closing the year at 5.7%. These forecasts are subject to significant uncertainty, especially regarding the future behavior of external cost shocks, the degree of indexation of nominal contracts and decisions made regarding the domestic price of fuels. Economic activity continues to outperform expectations, and the technical staff’s growth projections for 2022 have been revised upwards from 5% to 6.9%. The new forecasts suggest higher output levels that would continue to exceed the economy’s productive capacity for the remainder of 2022. Economic growth during the first quarter was above that estimated in April, while economic activity indicators for the second quarter suggest that the GDP could be expected to remain high, potentially above that of the first quarter. Domestic demand is expected to maintain a positive dynamic, in particular, due to the household consumption quarterly growth, as suggested by vehicle registrations, retail sales, credit card purchases and consumer loan disbursement figures. A slowdown in the machinery and equipment imports from the levels observed in March contrasts with the positive performance of sales and housing construction licenses, which indicates an investment level similar to that registered for the first three months of the year. International trade data suggests the trade deficit would be reduced as a consequence of import levels that would be lesser than those observed in the first quarter, and stable export levels. For the remainder of the year and 2023, a deceleration in consumption is expected from the high levels seen during the first half of the year, partially as a result of lower repressed demand, tighter domestic financial conditions and household available income deterioration due to increased inflation. Investment is expected to continue its slow recovery while remaining below pre-pandemic levels. The trade deficit is expected to tighten due to projected lower domestic demand dynamics, and high prices of oil and other basic goods exported by the country. Given the above, economic growth in the second quarter of 2022 would be 11.5%, and for 2022 and 2023 an annual growth of 6.9% and 1.1% is expected, respectively. Currently, and for the remainder of 2022, the output gap would be positive and greater than that estimated in April, and prices would be affected by demand pressures. These projections continue to be affected by significant uncertainty associated with global political tensions, the expected adjustment of monetary policy in developed countries, external demand behavior, changes in country risk outlook, and the future developments in domestic fiscal policy, among others. The high inflation levels and respective expectations, which exceed the target of the world's main central banks, largely explain the observed and anticipated increase in their monetary policy interest rates. This environment has tempered the growth forecast for external demand. Disruptions in value chains, rising international food and energy prices, and expansionary monetary and fiscal policies have contributed to the rise in inflation and above-target expectations seen by several of Colombia’s main trading partners. These cost and price shocks, heightened by the effects of Russia's invasion of Ukraine, have been more prevalent than expected and have taken place within a set of output and employment recovery, variables that in some countries currently equal or exceed their projected long-term levels. In response, the U.S. Federal Reserve accelerated the pace of the benchmark interest rate increase and rapidly reduced liquidity levels in the money market. Financial market actors expect this behavior to continue and, consequently, significantly increase their expectations of the average path of the Fed's benchmark interest rate. In this setting, the U.S. dollar appreciated versus the peso in the second quarter and emerging market risk measures increased, a behavior that intensified for Colombia. Given the aforementioned, for the remainder of 2022 and 2023, the Bank's technical staff increased the forecast trajectory for the Fed's interest rate and reduced the country's external demand growth forecast. The projected oil price was revised upward over the forecast horizon, specifically due to greater supply restrictions and the interruption of hydrocarbon trade between the European Union and Russia. Global geopolitical tensions, a tightening of monetary policy in developed economies, the increase in risk perception for emerging markets and the macroeconomic imbalances in the country explain the increase in the projected trajectory of the risk premium, its trend level and the neutral real interest rate1. Uncertainty about external forecasts and their consequent impact on the country's macroeconomic scenario remains high, given the unpredictable evolution of the conflict between Russia and Ukraine, geopolitical tensions, the degree of the global economic slowdown and the effect the response to recent outbreaks of the pandemic in some Asian countries may have on the world economy. This macroeconomic scenario that includes high inflation, inflation forecasts, and expectations above 3% and a positive output gap suggests the need for a contractionary monetary policy that mitigates the risk of the persistent unanchoring of inflation expectations. In contrast to the forecasts of the April report, the increase in the risk premium trend implies a higher neutral real interest rate and a greater prevailing monetary stimulus than previously estimated. For its part, domestic demand has been more dynamic, with a higher observed and expected output level that exceeds the economy’s productive capacity. The surprising accelerations in the headline and core inflation reflect stronger and more persistent external shocks, which, in combination with the strength of aggregate demand, indexation, higher inflation expectations and exchange rate pressures, explain the upward projected inflation trajectory at levels that exceed the target over the next two years. This is corroborated by the inflation expectations of economic analysts and those derived from the public debt market, which continued to climb and currently exceed 3%. All of the above increase the risk of unanchoring inflation expectations and could generate widespread indexation processes that may push inflation away from the target for longer. This new macroeconomic scenario suggests that the interest rate adjustment should continue towards a contractionary monetary policy landscape. 1.2. Monetary policy decision Banco de la República’s Board of Directors (BDBR), at its meetings in June and July 2022, decided to continue adjusting its monetary policy. At its June meeting, the BDBR decided to increase the monetary policy rate by 150 basis points (b.p.) and its July meeting by majority vote, on a 150 b.p. increase thereof at its July meeting. Consequently, the monetary policy interest rate currently stands at 9.0% . 1 The neutral real interest rate refers to the real interest rate level that is neither stimulative nor contractionary for aggregate demand and, therefore, does not generate pressures that lead to the close of the output gap. In a small, open economy like Colombia, this rate depends on the external neutral real interest rate, medium-term components of the country risk premium, and expected depreciation. Box 1: A Weekly Indicator of Economic Activity for Colombia Juan Pablo Cote Carlos Daniel Rojas Nicol Rodriguez Box 2: Common Inflationary Trends in Colombia Carlos D. Rojas-Martínez Nicolás Martínez-Cortés Franky Juliano Galeano-Ramírez Box 3: Shock Decomposition of 2021 Forecast Errors Nicolás Moreno Arias

Macroeconomic summary Several factors contributed to an increase in projected inflation on the forecast horizon, keeping it above the target rate. These included inflation in December that surpassed expectations (5.62%), indexation to higher inflation rates for various baskets in the consumer price index (CPI), a significant real increase in the legal minimum wage, persistent external and domestic inflationary supply shocks, and heightened exchange rate pressures. The CPI for foods was affected by the persistence of external and domestic supply shocks and was the most significant contributor to unexpectedly high inflation in the fourth quarter. Price adjustments for fuels and certain utilities can explain the acceleration in inflation for regulated items, which was more significant than anticipated. Prices in the CPI for goods excluding food and regulated items also rose more than expected. This was partly due to a smaller effect on prices from the national government’s VAT-free day than anticipated by the technical staff and more persistent external pressures, including via peso depreciation. By contrast, the CPI for services excluding food and regulated items accelerated less than expected, partly reflecting strong competition in the communications sector. This was the only major CPI basket for which prices increased below the target inflation rate. The technical staff revised its inflation forecast upward in response to certain external shocks (prices, costs, and depreciation) and domestic shocks (e.g., on meat products) that were stronger and more persistent than anticipated in the previous report. Observed inflation and a real increase in the legal minimum wage also exceeded expectations, which would boost inflation by affecting price indexation, labor costs, and inflation expectations. The technical staff now expects year-end headline inflation of 4.3% in 2022 and 3.4% in 2023; core inflation is projected to be 4.5% and 3.6%, respectively. These forecasts consider the lapse of certain price relief measures associated with the COVID-19 health emergency, which would contribute to temporarily keeping inflation above the target on the forecast horizon. It is important to note that these estimates continue to contain a significant degree of uncertainty, mainly related to the development of external and domestic supply shocks and their ultimate effects on prices. Other contributing factors include high price volatility and measurement uncertainty related to the extension of Colombia’s health emergency and tax relief measures (such as the VAT-free days) associated with the Social Investment Law (Ley de Inversión Social). The as-yet uncertain magnitude of the effects of a recent real increase in the legal minimum wage (that was high by historical standards) and high observed and expected inflation, are additional factors weighing on the overall uncertainty of the estimates in this report. The size of excess productive capacity remaining in the economy and the degree to which it is closing are also uncertain, as the evolution of the pandemic continues to represent a significant forecast risk. margin, could be less dynamic than expected. And the normalization of monetary policy in the United States could come more quickly than projected in this report, which could negatively affect international financing costs. Finally, there remains a significant degree of uncertainty related to the duration of supply chocks and the degree to which macroeconomic and political conditions could negatively affect the recovery in investment. The technical staff revised its GDP growth projection for 2022 from 4.7% to 4.3% (Graph 1.3). This revision accounts for the likelihood that a larger portion of the recent positive dynamic in private consumption would be transitory than previously expected. This estimate also contemplates less dynamic investment behavior than forecast in the previous report amid less favorable financial conditions and a highly uncertain investment environment. Third-quarter GDP growth (12.9%), which was similar to projections from the October report, and the fourth-quarter growth forecast (8.7%) reflect a positive consumption trend, which has been revised upward. This dynamic has been driven by both public and private spending. Investment growth, meanwhile, has been weaker than forecast. Available fourth-quarter data suggest that consumption spending for the period would have exceeded estimates from October, thanks to three consecutive months that included VAT-free days, a relatively low COVID-19 caseload, and mobility indicators similar to their pre-pandemic levels. By contrast, the most recently available figures on new housing developments and machinery and equipment imports suggest that investment, while continuing to rise, is growing at a slower rate than anticipated in the previous report. The trade deficit is expected to have widened, as imports would have grown at a high level and outpaced exports. Given the above, the technical staff now expects fourth-quarter economic growth of 8.7%, with overall growth for 2021 of 9.9%. Several factors should continue to contribute to output recovery in 2022, though some of these may be less significant than previously forecast. International financial conditions are expected to be less favorable, though external demand should continue to recover and terms of trade continue to increase amid higher projected oil prices. Lower unemployment rates and subsequent positive effects on household income, despite increased inflation, would also boost output recovery, as would progress in the national vaccination campaign. The technical staff expects that the conditions that have favored recent high levels of consumption would be, in large part, transitory. Consumption spending is expected to grow at a slower rate in 2022. Gross fixed capital formation (GFCF) would continue to recover, approaching its pre-pandemic level, though at a slower rate than anticipated in the previous report. This would be due to lower observed GFCF levels and the potential impact of political and fiscal uncertainty. Meanwhile, the policy interest rate would be less expansionary as the process of monetary policy normalization continues. Given the above, growth in 2022 is forecast to decelerate to 4.3% (previously 4.7%). In 2023, that figure (3.1%) is projected to converge to levels closer to the potential growth rate. In this case, excess productive capacity would be expected to tighten at a similar rate as projected in the previous report. The trade deficit would tighten more than previously projected on the forecast horizon, due to expectations of an improved export dynamic and moderation in imports. The growth forecast for 2022 considers a low basis of comparison from the first half of 2021. However, there remain significant downside risks to this forecast. The current projection does not, for example, account for any additional effects on economic activity resulting from further waves of COVID-19. High private consumption levels, which have already surpassed pre-pandemic levels by a large margin, could be less dynamic than expected. And the normalization of monetary policy in the United States could come more quickly than projected in this report, which could negatively affect international financing costs. Finally, there remains a significant degree of uncertainty related to the duration of supply chocks and the degree to which macroeconomic and political conditions could negatively affect the recovery in investment. External demand for Colombian goods and services should continue to recover amid significant global inflation pressures, high oil prices, and less favorable international financial conditions than those estimated in October. Economic activity among Colombia’s major trade partners recovered in 2021 amid countries reopening and ample international liquidity. However, that growth has been somewhat restricted by global supply chain disruptions and new outbreaks of COVID-19. The technical staff has revised its growth forecast for Colombia’s main trade partners from 6.3% to 6.9% for 2021, and from 3.4% to 3.3% for 2022; trade partner economies are expected to grow 2.6% in 2023. Colombia’s annual terms of trade increased in 2021, largely on higher oil, coffee, and coal prices. This improvement came despite increased prices for goods and services imports. The expected oil price trajectory has been revised upward, partly to supply restrictions and lagging investment in the sector that would offset reduced growth forecasts in some major economies. Elevated freight and raw materials costs and supply chain disruptions continue to affect global goods production, and have led to increases in global prices. Coupled with the recovery in global demand, this has put upward pressure on external inflation. Several emerging market economies have continued to normalize monetary policy in this context. Meanwhile, in the United States, the Federal Reserve has anticipated an end to its asset buying program. U.S. inflation in December (7.0%) was again surprisingly high and market average inflation forecasts for 2022 have increased. The Fed is expected to increase its policy rate during the first quarter of 2022, with quarterly increases anticipated over the rest of the year. For its part, Colombia’s sovereign risk premium has increased and is forecast to remain on a higher path, to levels above the 15-year-average, on the forecast horizon. This would be partly due to the effects of a less expansionary monetary policy in the United States and the accumulation of macroeconomic imbalances in Colombia. Given the above, international financial conditions are projected to be less favorable than anticipated in the October report. The increase in Colombia’s external financing costs could be more significant if upward pressures on inflation in the United States persist and monetary policy is normalized more quickly than contemplated in this report. As detailed in Section 2.3, uncertainty surrounding international financial conditions continues to be unusually high. Along with other considerations, recent concerns over the potential effects of new COVID-19 variants, the persistence of global supply chain disruptions, energy crises in certain countries, growing geopolitical tensions, and a more significant deceleration in China are all factors underlying this uncertainty. The changing macroeconomic environment toward greater inflation and unanchoring risks on inflation expectations imply a reduction in the space available for monetary policy stimulus. Recovery in domestic demand and a reduction in excess productive capacity have come in line with the technical staff’s expectations from the October report. Some upside risks to inflation have materialized, while medium-term inflation expectations have increased and are above the 3% target. Monetary policy remains expansionary. Significant global inflationary pressures and the unexpected increase in the CPI in December point to more persistent effects from recent supply shocks. Core inflation is trending upward, but remains below the 3% target. Headline and core inflation projections have increased on the forecast horizon and are above the target rate through the end of 2023. Meanwhile, the expected dynamism of domestic demand would be in line with low levels of excess productive capacity. An accumulation of macroeconomic imbalances in Colombia and the increased likelihood of a faster normalization of monetary policy in the United States would put upward pressure on sovereign risk perceptions in a more persistent manner, with implications for the exchange rate and the natural rate of interest. Persistent disruptions to international supply chains, a high real increase in the legal minimum wage, and the indexation of various baskets in the CPI to higher inflation rates could affect price expectations and push inflation above the target more persistently. These factors suggest that the space to maintain monetary stimulus has continued to diminish, though monetary policy remains expansionary. 1.2 Monetary policy decision Banco de la República’s board of directors (BDBR) in its meetings in December 2021 and January 2022 voted to continue normalizing monetary policy. The BDBR voted by a majority in these two meetings to increase the benchmark interest rate by 50 and 100 basis points, respectively, bringing the policy rate to 4.0%.