Добірка наукової літератури з теми "Marked point proce"

We investigate a Markov, regime-switching, marked point process for the short-term interest rate in a market. The intensity of the marked point process is a bounded, predictable process and is modulated by two observable factors. One is an economic factor described by a diffusion process, and another one is described by a Markov chain. The states of the chain are interpreted as different rating categories of corporate credit ratings issued by rating agencies. We consider a general pricing kernel which can explicitly price economic, market, and credit risks. It is shown that the price of a pure discount bond satisfies a system of coupled partial differential-integral equations under a risk-adjusted measure.

This article considers the asset price movements in a financial market when risky asset prices are modeled by marked point processes. Their dynamics depend on an underlying event arrivals process—a marked point process having common jump times with the risky asset price process. The problem of utility maximization of terminal wealth is dealt with when the underlying event arrivals process is assumed to be unobserved by the market agents using, as the main tool, backward stochastic differential equations. The dual problem is studied. Explicit solutions in a particular case are given.

This article considers the asset price movements in a financial market when risky asset prices are modeled by marked point processes. Their dynamics depend on an underlying event arrivals process, modeled again by a marked point process. Taking into account the presence of catastrophic events, the possibility of common jump times between the risky asset price process and the arrivals process is allowed. By setting and solving a suitable control problem, the characterization of the minimal entropy martingale measure is obtained. In a particular case, a pricing problem is also discussed.

In a defaultable market, an investor trades having only partial information about the behavior of the market. Taking into account the intraday stock movements, the risky asset prices are modelled by marked point processes. Their dynamics depend on an unobservable process, representing the amount of news reaching the market. This is a marked point process, which may have common jump times with the risky asset price processes. The problem of hedging a defaultable claim is studied. In order to discuss all these topics, in this paper we examine stochastic control problems using backward stochastic differential equations (BSDEs) and filtering techniques. The goal of this paper is to construct a sequence of functions converging to the value function, each of these is the unique solution of a suitable BSDE.

In a defaultable market, an investor trades having only partial information about the behavior of the market. Taking into account the intraday stock movements, the risky asset prices are modelled by marked point processes. Their dynamics depend on an unobservable process, representing the amount of news reaching the market. This is a marked point process, which may have common jump times with the risky asset price processes. The problem of hedging a defaultable claim is studied. In order to discuss all these topics, in this paper we examine stochastic control problems using backward stochastic differential equations (BSDEs) and filtering techniques. The goal of this paper is to construct a sequence of functions converging to the value function, each of these is the unique solution of a suitable BSDE.

Investment in commodity markets in India accelerated after 2007; this was accompanied by large price variability, hence, it becomes imperative to measure commodity price risk precisely. It becomes equally important to study the relationship between commodity price variability and the stock market. Hence, this study aims to calculate the tail risk of highly traded Indian commodity futures returns using the conditional EVT-VaR method for risk measurement. Secondly, the linkage between commodity markets and the stock market is also studied using the Delta CoVaR method. Results highlight the following points. There is risk transfer from the extreme increase/decrease in crude oil futures returns to the Nifty Index returns. Both extreme price increase or decrease of crude oil futures driven either by financial or a combination of financial and economic shocks affect the stock market. Zinc and Natural gas futures are not linked to the stock market, which means they can be useful in portfolio diversification. The findings suggest that, in Indian commodity markets, EVT-VaR is a useful tool for measuring risk. Only Crude oil futures shocks affect the stock market, and extreme integration between them becomes more prominent when oil shocks are driven by financial factors. Commodities other than Crude oil are not integrated with stock markets in India.

The 3D scanning of a freeform structure relies on the laser probe and the localization system. The localization system, determining the effect of the point cloud reconstruction, will generate positioning errors when the laser probe works in complex paths with a fast speed. To reduce the errors, in this paper, a linear laser scanning measurement method is proposed based on binocular vision calibration. A simple and effective eight-point positioning marker attached to the scanner is proposed to complete the positioning and tracking procedure. Based on this, the method of marked point detection based on image moment and the principle of global coordinate system calibration are introduced in detail. According to the invariance principle of space distance, the corresponding points matching method between different coordinate systems is designed. The experimental results show that the binocular vision system can complete localization under different light intensities and complex environments, and that the repeated translation error of the binocular vision system is less than 0.22 mm, while the rotation error is less than 0.15°. The repeated error of the measurement system is less than 0.36 mm, which can meet the requirements of the 3D shape measurement of the complex workpiece.

Financial models incorporating a reference point, such as the Capital Gains Overhang (CGO) model, typically assume it is fixed at the purchase price. Combining experimental and market data, this paper examines whether such models can be improved by incorporating reference-point adjustment. Using real stock prices over horizons from 6 months to 5 years, experimental evidence demonstrates that a number of salient points in the prior share price path are key determinants of the reference point, in addition to the purchase price. Market data testing is then undertaken by using the CGO model. We show that composite CGO variables, created by using a mix of salient points with weights determined in the experiment, have greater predictive power than the traditional CGO variable in both cross-sectional U.S. equity-return analysis and when analyzing the performance of double-sorted portfolios. In addition, future trading volume is more sensitive to changes in the composite CGO variables than to the traditional CGO, further emphasizing the importance of adjusting reference points. This paper was accepted by Tyler Shumway, Finance.

For short-term investments in equity markets, investors use price points, candlestick patterns, moving averages, support and resistance levels, trendlines, price patterns, relative strength index, and moving average convergence-divergence as reference(s) for making decisions. This study investigates whether investors use daily price extremes (highest and lowest prices for the day) for making short-term investments or trading decisions in the context of the Indian equity market. Using 6,902 observations of daily data of the NIFTY 50 index since its launch, it is observed that daily price extremes (high or low) have no impact on opening returns of the next trading day. Based on the dummy regression analysis, next-day opening returns were found to be statistically significant, which implies the presence of momentum behavior. However, insignificant coefficients for high or low-price extremes of the day mean that investors do not use them as an anchor or reference point for decisions. Results are consistent over time and robust to the rising or falling markets. Further, opening returns were seen to be more volatile than closing returns in the first half of the sample, and they are less volatile in the second half, implying that markets have become more efficient in the last few years.

Thesis (Ed. D.)--Teachers College, Columbia University, 1986.
Typescript; issued also on microfilm. Sponsor: Joan Dye Gussow. Dissertation Committee: Isobel Contento, Robert C. Feenstra. Bibliography: 182-191.

У дисертаційній роботі удосконалено систему методів ЦБП в Україні залежно від основних цінових чинників та видів послуг; запропоновано комбінований метод ЦБП та обґрунтовано специфіку його використання для процентних БП і торговельних операцій; поглиблено засади визначення витрат при ЦБП із використанням функціонально-вартісного аналізу; розвинуто науково-практичну базу врахування фактора часу при застосуванні витратного методу ЦБП, а також ризику коливання цін при встановленні цінових орієнтирів на процентні БП, прогнозування цінової динаміки на міжбанківському кредитному ринку та ринку облігацій. The dissertation develops a system of pricing methods for bank services in Ukraine according to main pricing drivers and kind of services. It introduces a combined method of bank services pricing and proves the features of its usage for banking deposit, loans and trading operations. The paper develops the foundations of costs determination at commission services pricing using ABC-method and investigates scientific and practical frameworks for consideration of the time factor in applying the cost-oriented method of pricing for banks services. It develops methodological tools that let to take into account the risk of price fluctuations at setting price targets on banking deposit and loans. The methodological framework of forecasting of price dynamics on interbank credit market and bond market is developed in the investigation.

In questa tesi si propone una nuova classe di modelli probabilistici per dati multivariati ad altissima frequenza. Questi dati si incontrano oggigiorno in molti ambiti applicativi e in particolare in finanza quando si considerano contemporaneamente le transazioni di più di un’azione. Le serie temporali di queste transazioni sono caratterizzate da tempi non equispaziati e non sincronizzati e per queste un naturale modello probabilistico di riferimento sono i processi puntuali marcati. In questo lavoro, per modellizzare questo tipo di dati abbiamo considerato una particolare sottoclasse di questi processi, in particolare la classe dei processi di Poisson doppio stocastici con marchi. Nello specifico del caso multivariato, si è assunto, per ogni azione, che i tempi di arrivo delle transazioni fossero descrivibili da un processo di Poisson doppio stocastico e che le relative intensità latenti fossero funzione di alcune componenti dinamiche specifiche e di una componente dinamica comune, tutte di forma “shot noise”. Quest’ultima componente dovrebbe essere responsabile del comportamento osservato sul mercato di alcuni panieri di azioni. Il problema principale posto da questa classe di modelli è il filtraggio delle intensità latenti non osservabili sulla base delle transazioni osservate. Nella tesi si è proposto di affrontare questo problema di filtraggio non lineare ideando ed implementando una procedura stocastica basata sull’algoritmo “reversibile jump Markov chain Monte Carlo”. Per mezzo di questo algoritmo, si è riusciti a ricostruire a posteriori, non solo le intensità latenti, ma anche le loro componenti, in particolare quella comune. Da un punto di vista empirico, sulla base di innumerevoli confronti tra le proprietà statistiche, relative principalmente alle correlazioni e alle cross-correlazioni tra coppie di azioni, di dati reali provenienti dalla Borsa di Milano e dati simulati, ottenuti sulla base di diverse ipotesi per i tempi di arrivo delle transazioni e per i logreturns, il modello proposto è risultato essere il più plausibile fornendo quindi un’evidenza empirica per l’esistenza di una componente comune sottostante i tempi di arrivo delle transazioni di panieri di azioni.
In this thesis, we propose a modeling framework for multivariate ultra-high-frequency financial data. The proposed models belong to the class of the doubly stochastic Poisson processes with marks which are characterized by the number of events in any time interval to be conditionally Poisson distributed, given another positive stochastic process called intensity. The key assumption of these models is that the intensities are specified through a latent common dynamic factor that jointly drives their common behavior. Assuming the intensities are unobservable, we propose a signal extraction (filtering) method based on the reversible jump Markov chain Monte Carlo algorithm. Our proposed filtering method allows to filter not only the intensities but also their specific and common components. From an empirical stand point, on the basis of a comparison of real data with Monte Carlo simulated data, obtained under different assumptions for ticks (times and logreturns), based mainly on the behavior of the correlation between pairs of assets as a function of the sampling period (Epps effect), we found evidence for the existence of a single latent common factor responsible for the behavior observed in a set of assets from the Borsa di Milano.

碩士
靜宜大學
應用數學研究所
93
During the last dozens of years, the market demands have been triggering the rapid booming of Derivatives. The options value, for example, is one of the prominent merchandises. However, the sensitive overreaction of the investors resulting from the international and sudden incidents will often lead the price to fluctuate outrageously. Therefore, in order to stabilize the price and allow the governmental authorities to have the sufficient time in dealing with emergencies, the mechanism of price limit is necessary to be put into effect. The binomial tree model is one of the most significant tools for pricing options. With price limit, we need to modify the binomial tree model so that the stock prices are within the price limitation. The implied probability distribution can then be obtained by the method first proposed by Mark Rubinstein (1994). Therefore this thesis uses the implied binomial tree model in the price limit market for options pricing. We value plain vanilla options and barrier options prices and observe the changes of options price.

Title: Models of Marked Point Processes Author: Ivan Héda Department: Department of Probability and Mathematical Statistics Supervisor: doc. RNDr. Zbyněk Pawlas, Ph.D. Abstract: In the first part of the thesis, we present necessary theoretical basics as well as the definition of functional characteristics used for examination of marked point patterns. Second part is dedicated to review some known marking strategies. The core of the thesis lays in the study of intensity-marked point processes. General formula for the characteristics is proven for this marking strategy and general class of the models with analytically computable characteristics is introduced. This class generalizes some known models. Theoretical results are used for real data analysis in the last part of the thesis. Keywords: marked point process, marked log-Gaussian Cox process, intensity-marked point process 1

The monograph presents conceptual approaches and practical recommendations for the formation of a system for monitoring pricing processes in the economy. The main idea of creating such a system is to ensure the transparency of pricing processes, the exclusion of price manipulation practices, and the implementation of the principle of fair business conduct. The presented research examines the problems of setting final prices in the economy on a systematic basis: from an institutional point of view, economic practices, features of legal regulation and information support of pricing processes in the economy are described. On the example of a large amount of factual material, the inconsistency of purely market relations and the risks that arise in this case are shown, the need for monitoring pricing processes is proved. For a wide range of readers interested in the nature of pricing processes in methodological and practical aspects.

Are behavioral biases prevalent in commodities and futures markets? Although retail equity investors display many psychological biases, investors who are more sophisticated exhibit fewer biases. The market makers, traders (locals), speculators, hedgers, and institutions of the commodities and futures markets tend to be professional participants, and thus less prone to behavioral biases. Nevertheless, the fast-paced action of these markets is an environment that fosters behavioral errors. This chapter reviews the literature on the pervasiveness of prospect theory behavior and other biases in these markets. Strong evidence indicates that market participants exhibit loss aversion, the impact of reference points, the disposition effect, and overconfidence. They also engage in positive feedback trading and momentum investing. Lastly, the chapter reviews risk-taking and behavioral biases by the type of market participant, particularly focusing on market makers, floor traders, clearing members, and the public.

AbstractThis study assesses the feasibility of electric three-wheelers as moto-taxis in Dar es Salaam, Tanzania from a socioeconomic and technical point of view. The analysis is based on three pillars: (i) the acceptance of users (the moto-taxi drivers) for adoption, (ii) the vehicle specifications incl. battery type and size, and (iii) the role of the charging infrastructure. Findings are based on data from empirical field-work; methods used are qualitative and quantitative data analysis and modelling. Main findings include that moto-taxi drivers, who we see as most important adopters, are open towards electric mobility. They request however that vehicles should have similar driving characteristics than their current fuel-vehicles. As the market is very price sensitive, keeping the vehicle cost is of high importance. A high potential to lower these costs is seen by offering opportunity charging spots around the city. If such an infrastructure is being implemented the combination with suitable, cost competitive vehicles makes the transformation of the vehicle market towards electrification possible.

AbstractProbabilistic programming is an approach to reasoning under uncertainty by encoding inference problems as programs. In order to solve these inference problems, probabilistic programming languages (PPLs) employ different inference algorithms, such as sequential Monte Carlo (SMC), Markov chain Monte Carlo (MCMC), or variational methods. Existing research on such algorithms mainly concerns their implementation and efficiency, rather than the correctness of the algorithms themselves when applied in the context of expressive PPLs. To remedy this, we give a correctness proof for SMC methods in the context of an expressive PPL calculus, representative of popular PPLs such as WebPPL, Anglican, and Birch. Previous work have studied correctness of MCMC using an operational semantics, and correctness of SMC and MCMC in a denotational setting without term recursion. However, for SMC inference—one of the most commonly used algorithms in PPLs as of today—no formal correctness proof exists in an operational setting. In particular, an open question is if the resample locations in a probabilistic program affects the correctness of SMC. We solve this fundamental problem, and make four novel contributions: (i) we extend an untyped PPL lambda calculus and operational semantics to include explicit resample terms, expressing synchronization points in SMC inference; (ii) we prove, for the first time, that subject to mild restrictions, any placement of the explicit resample terms is valid for a generic form of SMC inference; (iii) as a result of (ii), our calculus benefits from classic results from the SMC literature: a law of large numbers and an unbiased estimate of the model evidence; and (iv) we formalize the bootstrap particle filter for the calculus and discuss how our results can be further extended to other SMC algorithms.

AbstractNavigating through locks is one of the most challenging tasks that skippers have to perform in inland navigation. Typical dimensions of a ship (width = 11.45 m) and a lock (width = 12 m) result in an error margin of less than 30 cm to the left and to the right of the ship when navigating within a lock chamber. Typical inland vessels on European waters have a length of 82 to 186 m. The wheel house on cargo vessels is located close to the stern of the vessel. This leads to low visibility of the bow in the lock chamber. In order to cope with this issue, a deck hand monitors the bow and announces distances to the skipper via radio. The quality of this information depends on the deck hand’s ability to judge distances correctly and is prone to error. This highly demanding maneuver needs to be performed up to 15 times per day. Each lock passage can take up to 30 minutes. The research project SciPPPer aims at automating this complex navigational task.The German acronym SciPPPer stands for Schleusenassistenzsystem basierend auf PPP und VDES für die Binnenschifffahrt – lock assistant system based on PPP and VDES for inland navigation. The idea is to fully automate the navigation into and out of a lock using high-precision GNSS (Global Navigation Satellite System) with PPP (precise point positioning) correction data which is transmitted from shore to ship using VDES (VHF Data Exchange System), an extension to AIS (Automatic Identification System). This absolute measurement data is complemented by relative measurement data using LiDAR and automotive RADAR and fused with inertial measurement data delivered by a mechanical gyro system. Apart from the challenge of precisely measuring the position and orientation of the vessel within the lock chamber, the control task poses an interesting problem as well. This contribution introduces both, the measuring and the control problem. However, the focus lies on the results of the control performance that was achieved on a full-bridge simulator as well as during real-world trials. A full-bridge simulator was used in order to test the control strategy and its algorithms safely. A number of different actuator configurations were investigated. Typical inland cargo vessels use one or two propellers with Kort nozzle and a twin rudder behind each propeller and a 360° turnable bow thruster. Typical inland passenger vessels use several (2–4) 360° turnable rudder propellers as main propulsion as well as a 360° turnable bow thruster or a classical tunnel thruster which can only apply forces to starboard or portside. These typical configurations were examined by simulation. The real-world trials were performed on a passenger vessel with three rudder propellers as main propulsion as well as a classical tunnel bow thruster acting left and right.This contribution presents the results of the simulator study as well as the real-world trials in terms of control performance. It explains specific challenges due to the navigation within an extremely confined space. The contribution concludes with lessons learned as well as an outlook focusing on the potential of the introduction of such a system to the inland navigation market.

‘Markets’ examines markets, looking at demand and supply. The demand curve provides information on how the demand for a given product changes with its price, while the supply curve illustrates the correlation between the product price and quantity available for a given period. The meeting point between the two, in a competitive market, represents the market price. The market price is affected, among other things, by the nature of the product in question, by the availability and price of substitutions (cross-price elasticity), by changing consumer needs and preferences, by innovation, and by consumers’ level of income. There are two types of markets relevant here: the product market and the geographical market.

Factors interfering with market-based alignment of drug prices and value make explicit value assessment necessary. The widely used quality-adjusted life year serves as a starting point because it accounts for both quality and length of life. Cost estimates could improve by accounting for drug price changes accompanying the loss of market exclusivity. Consistent use of a societal perspective when relevant would also improve value assessments. Prices should sometimes reflect government contributions to development, although such adjustments make the most sense when government facilitates late-stage research. The Institute for Clinical and Economic Review, a private group with a leading role in US value assessment, should make its analyses transparent and defer to payers regarding judgements about value. Finally, payers should embrace value-based pricing. They may not always get the lowest prices, but aligning price and value will mean society expends its resources efficiently and improves the population’s overall health.

This chapter points out that markets are more than a forum where goods and services are exchanged for money. Although price, money, and bargaining are important hallmarks of market exchange, such exchanges cannot be considered separately from their social and political-economic contexts. The chapter illustrates that it is this social embeddedness that ultimately enhances the transformative power of markets. Drawing on the socially embedded, or “substantivist,” view of markets, the chapter studies the relationships, actions, and innovations that occur in market networks to gain a granular but contextualized view of their functioning. It then turns to Deleuze and Guattari's analytic of the rhizome. Deleuze and Guattari use these terms as a heuristic device to explain the tangled and unbounded character of various social phenomena that lack clear organizational hierarchies and points of “culmination.” As the chapter highlights, the rhizome analytic invites us to examine markets as constantly in formation, through everyday practices that bind social and material worlds.

This chapter addresses benchmarks. A benchmark is essentially a standard or point of reference against which things may be compared. Benchmarks are referenced in many contracts including commodity derivatives. They can be determined in a number of different ways, from calculation of factual data such as information about transactions executed through to exercise of expert judgement. In recent years, there has been a focus on the need to ensure that benchmarks accurately reflect the market they claim to measure, are transparent about how they are determined, and that they are not influenced by potential conflicts of interest. This action started at international level, with the G20 leaders declaring in 2011 to prepare recommendations to improve the functioning and oversight of the oil price reporting agencies (PRAs). PRAs are publishers and information providers who report prices transacted in physical and some derivatives markets, and give an informed assessment of price levels at distinct points in time. The International Organization of Securities Commissions (IOSCO) subsequently published a set of Principles for Financial Benchmarks (IOSCO Principles) in light of investigations and enforcement actions regarding attempted manipulation of major interest rate benchmarks.

This chapter explores the degree to which a fair markets approach supports democratic regulations and responses to negative “externalities” (or the social costs of market transactions not borne by parties to the transaction). It explores how classical liberal market-based ideas point to so-called Pigouvian taxes as a leading response to externalities, and therefore to a price on carbon in response to the existential challenge posed by climate change. But it also highlights the need to pay attention to the distributive consequences of these kinds of taxes, or their impact on economic inequality and access to a dignified social minimum—in ways that point to the value of redistributing these taxes back to citizens in the form of a citizen “dividend.” Finally, it notes the degree to which other regulatory responses, including robust financial regulation, are additional important democratic liberal responses to the challenge of externalities.

Testing the efficient market hypothesis can always bring interest­ing points regarding the functions of the financial markets. Every investor wants to beat the market, and therefore he is trying to find information that will gain him some privileges. On the other side, the stock exchanges and reg­ulatory agencies are striving to eliminate those information privileges. This is where market efficiency, its theory, and its forms come into question. Until to­day one can find research on testing the efficiency of different developed mar­kets. However, there are still a lot of gaps in research involving small and un­derdeveloped markets. This research may put the developing markets on the investment opportunities map of international investors. The purpose of this paper is to show how information efficiency relates to the Macedonian stock market by testing the weak form efficiency, using the augmented Dickey-Full­er (ADF) test to observe whether they contain a unit root or not. The results will be used to show the opportunities for adopting a profitable investment strat­egy using the technical analysis of the Macedonian stock exchange. Addition­ally, the results show that by using the mouthy price differences one cannot beat the market as the prices are moving with a random walk, which is not the case if investors are analyzing daily price differences.

An experimental study was conducted to sense interlaminar delamination in carbon-fiber composites utilizing inherent material piezoresistivity. Damage detection was carried out using discrete electrodes mounted on a Double Cantilever Beam (DCB) specimen. The DCB composite specimens were tested for fatigue interlaminar fracture. The traditional two-point probe and four-point probe technique were employed to measure the through-thickness electrical resistance change. Optical marker method was also used to detect interlaminar crack growth. The results show that the two-point probe measurements did not capture effectively the delamination propagation while the four-point probe measurement showed a promising sensing capability in terms of delamination propagation.

Abstract Most studies involving the use of hydropower in an electric power system tend to consider the point of view of the system operator even though under liberalized markets in Europe, the operation of hydro units is set by the owner to maximize their profits. Such studies also often neglect uncertainties related to hydropower operation and instead assume perfect knowledge of the system conditions over the simulation horizon. This paper presents a methodology to overcome the aforementioned limitations. We optimize the operational choices of a hydropower cascade owner with multiple linked hydro assets and the ability to participate in several energy and reserve markets while also accounting for the impact of market price uncertainties on the owner’s operating decisions. The versatile optimization model created includes a detailed representation of any selected hydro cascade’s topology, constraints to reflect the machinery characteristics, and a rolling horizon approach to account for the price uncertainties in the daily operating schedule. The model is first validated using historical data for a hydro cascade in Switzerland and a perfect-knowledge approach. Next, price uncertainty is added to improve the historical simulation results and find a trade-off between accuracy and computational time.

In conventional partially observable Markov decision processes, the observations that the agent receives originate from fixed known distributions. However, in a variety of real-world scenarios, the agent has an active role in its perception by selecting which observations to receive. We avoid combinatorial expansion of the action space from integration of planning and perception decisions, through a greedy strategy for observation selection that minimizes an information-theoretic measure of the state uncertainty. We develop a novel point-based value iteration algorithm that incorporates this greedy strategy to pick perception actions for each sampled belief point in each iteration. As a result, not only the solver requires less belief points to approximate the reachable subspace of the belief simplex, but it also requires less computation per iteration. Further, we prove that the proposed algorithm achieves a near-optimal guarantee on value function with respect to an optimal perception strategy, and demonstrate its performance empirically.

This article presents an electricity dispatch model with endogenous electricity generation capacity expansion for Germany over the horizon 2035. The target is to quantify how fuel and carbon price risk impacts investment incentives of thermal power plants. Results point to findings which are in line with general theory: Accounting for stochasticity increases investment levels overall and the investment portfolio tends to be more diverse.

Article aims to show an application of regression analysis for qualitative evaluation of companies’ brand competitiveness from a customer point of view. Presented methodology could be applied if only a certain level of competition is observed in the market. We assume that (i) brand competitiveness is embodied into commodities’, that companies are selling, prices and (ii) companies that have more competitive brand are able to sell their commodity at a higher price after controlling for other explicit factors potentially affecting price. For this purpose, we adapt classical linear regression model and provide an example with car companies’ brands in the Italian market.

An economic model was developed to evaluate gas turbine component alternatives for base load combined cycle operation, cyclic duty simple cycle operation, and peaking duty simple cycle operation. Power plant operator value of alternative replacement first stage buckets for a GE Frame 7EA gas turbine is evaluated. The popularity and large installed base of the 7EA has prompted a number of replacement part offerings, in addition to the replacement parts offered by the OEM. A baseline case is established to represent the current bucket repair and replacement situation. Each of the modes of power plant operation is evaluated from both a long-term financial focus and a short-term financial focus. Long-term focus is characterized by a nine-year evaluation period, while short-term focus is based on first year benefit only. Four factors are considered: part price repair price, output increase, and simple cycle efficiency increase. Natural gas and liquid fuels are considered. Two natural gas prices are used; one liquid fuel price is considered. Peak, off-peak, and spot market electricity prices are considered. Two baseline repair price scenarios are evaluated: 50% of new part price and 10% of new part price. The key conclusions can be summarized as: • A reduced-life part with more frequent repair intervals is undesirable, even if the part price is reduced by over 60% and the cooling flow is reduced by 1% W2. • A short-life, “throw-away” part with no required repairs can achieve parity with the baseline if the price is reduced by 25% or more. The operator with a short-term focus will not differentiate between a “throw-away” part and a full-life part. • In general, increased part life has less value to the power plant operator than price reduction or cooling flow reduction. • Repair price (assumed to be 50% of part price) is a relatively small factor for operators with a long-term focus, and no factor at all for operators with a short-term focus. A lower baseline repair price (10% of part price) will decrease the attractiveness of a “throw-away” part, moving the parity point to a 40% price reduction. • A 0.7% W2 reduction in cooling flow has roughly the same first year benefit, at baseline fuel prices, as a 10–15% bucket price reduction, except to the peak duty operator. The peak duty operator finds no benefit to reduced cooling flow unless electricity can be sold at spot market prices.

Engineering approaches for optimizing designs within a market context generally take the perspective of a single producer, asking what design and price point will maximize producer profit predicted by consumer choice simulations. These approaches treat competitors and retailers as fixed or nonexistent, and they take business-oriented details, such as the structure of distribution channels, as separate issues that can be addressed post hoc by other disciplines. It is well established that the structure of market systems influences optimal product pricing. In this paper, we investigate whether two types of these structures also influence optimal product design decisions; specifically, 1) consumer heterogeneity and 2) distribution channels. We first model firms as players in a profit-seeking game that compete on product attributes and prices. We then model the interactions of manufacturers and retailers in Nash competition under alternative market structures and compare the equilibrium conditions for each case. We find that when consumers are modeled as homogeneous in their preferences, optimal design can be decoupled from the game, and design decisions can be made without regard to price, competition, or channel structure. However, when consumer preferences are heterogeneous, the behavior of competitors and retailers is key to determining which designs are profitable. We examine the extent of this effect in a vehicle design case study from the literature and find that the presence of heterogeneity leads different market structures to imply significantly different profit-maximizing designs.

To assess the effects of an oil price bust on individual labor market outcomes, we leverage the 2015 exogenous decline in international oil prices with geographical variation in oil-dependency in Ecuador. To account for propagation mechanisms, we also test the causal effect of the oil price bust on public transfers to local autonomous governments. Reduced form results suggest a moderate oil price pass-through channel on wages and nonlabor earnings but not on labor supply and participation. Public transfers play an amplification role, as a one percentage point decrease in these funds implies workers in oil-dependent areas to experience a wage reduction of 1.5%. Spillover effects to nonextractive industries, with reduced economic activity at the firm level, seem to be the transmission channels explaining the drop in individual earnings during the oil price bust.

The most prominent measure to moderate the escalation of electricity prices during 2022 has been the gas cap implemented exceptionally in Spain and Portugal. We present here the most accurate, rigorous and updated estimate of the effects of this measure on the regulated electricity tariff, known as the "Precio de Venta del Pequeño Consumidor (PVPC), which directly replicates the wholesale market price. To do so, we update the data we presented in September until the end of December 2022, comparing the real evolution of this tariff with a statistical model that draws the same line but in an alternative world in which the gas cap is not applied. After six months, the electricity bill at the regulated tariff in Spain is 32% cheaper than it would be in a world without the Iberian exceptionality: according to our estimate, the resulting saving for the whole of 2022 was around €209 per consumer. Moreover, inflation in 2022 would have been 0.3 points higher without a gas cap: 8.7%, instead of the 8.4% observed. In other words: half of Spain's better situation compared to the Eurozone can be attributed to this measure. On the negative side, the higher consumption of gas for electricity generation continues and the lower price of Spanish electricity, which would have facilitated the increase in exports to France with the consequent risk of subsidization in favor of French consumers at the expense of Spanish consumers.

The major bottlenecks in rearing the highly priced gastropod abalone (Haliotis spp.) are the slow growth rate and the high mortality during the first 8 to 12 weeks following metamorphosis and settling. The most likely reason flor these problems is related to nutritional deficiencies in the diatom diet on which the post larvae (PL) feed almost exclusively in captivity. Higher survival and improved growth rate will reduce the considerable expense of hatchery-nursery resisdence time and thereflore the production costs. BARD supported our research for one year only and the support was given to us in order to prove that "(1) Abalone PL feed on encapsulated diatoms, and (2) heterotrophic diatoms can be mass produced." In the course of this year we have developed a novel nutrient delivery system specifically designed to enhance growth and survival of post-larval abalone. This approach is based on the sodium-alginate encapsulation of heterotrophically grown diatoms or diatom extracts, including appetite-stimulating factors. Diatom species that attract the PL and promote the highest growth and survival have been identified. These were also tested by incorporating them (either intact cells or as cell extracts) into a sodium-alginate matrix while comparing the growth to that achieved when using diatoms (singel sp. or as a mixture). A number of potential chemoattractants to act as appetite-stimulating factors for abalone PL have been tested. Preliminary results show that the incorporation of the amino acid methionine at a level of 10-3M to the sodim alginate matrix leads to a marked enhancement of growth. The results ol these studies provided basic knowledge on the growth of abalone and showed that it is possible to obtain, on a regular basis, survival rates exceeding 10% for this stage. Prior to this study the survival rates ranged between 2-4%, less than half of the values achieved today. Several diatom species originated from the National Center for Mariculture (Nitzchia laevis, Navicula lenzi, Amphora T3, and Navicula tennerima) and Cylindrotheca fusiformis (2083, 2084, 2085, 2086 and 2087 UTEX strains, Austin TX) were tested for heterotrophic growth. Axenic colonies were initially obtained and following intensive selection cycles and mutagenesis treatments, Amphora T3, Navicula tennerima and Cylindrotheca fusiformis (2083 UTEX strain) were capable of growing under heterotrophic conditions and to sustain highly enriched mediums. A highly efficient selection procedure as well as cost effective matrix of media components were developed and optimized. Glucose was identified as the best carbon source for all diatom strains. Doubling times ranging from 20-40 h were observed, and stable heterotroph cultures at a densities range of 103-104 were achieved. Although current growth rates are not yet sufficient for full economical fermentation, we estimate that further selections and mutagenesis treatments cycles should result in much faster growing colonies suitable for a fermentor scale-up. As rightfully pointed out by one of the reviewers, "There would be no point in assessing the optimum levels of dietary inclusions into micro-capsules, if the post-larvae cannot be induced to consume those capsules in the first place." We believe that the results of the first year of research provide a foundationfor the continuation of this research following the objectives put forth in the original proposal. Future work should concentrate on the optimization of incorporation of intact cells and cell extracts of the developed heterotrophic strains in the alginate matrix, as well as improving this delivery system by including liposomes and chemoattractants to ensure food consumption and enhanced growth.

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%.

1.1 Macroeconomic summary In September, headline inflation (11.4% annually) and the average of core inflation indicators (8.6% annually) continued on a rising trend, and higher increases than expected were recorded. Forecasts increased again, and inflation expectations remained above 3%. Inflationary surprises in the third quarter were significant and widespread, and they are the result of several shocks. On the one hand, international cost and price shocks, which have mainly affected goods and foods, continue to exert upwards pressure on national inflation. In addition to these external supply shocks, domestic supply shocks have also affected foods. On the other hand, the strong recovery of aggregate demand, especially for private consumption and for machinery and equipment, as well as a higher accumulated depreciation of the Colombian peso and its pass-through to domestic prices also explain the rise in inflation. Indexation also contributes, both through the Consumer Price Index (CPI) and through the Producer Price Index (PPI), which continues to have a significant impact on electricity prices and, to a lesser degree, on other public utilities and rent. In comparison with July’s report, the new forecast trajectory for headline and core inflation (excluding food and regulated items) is higher in the forecast horizon, mainly due to exchange rate pressures, higher excess demand, and indexation at higher inflation rates, but it maintains a trend of convergence towards the target. In the case of food, a good domestic supply of perishable foods and some moderation in international processed food prices are still expected. However, the technical staff estimates higher pressures on this group’s prices from labor costs, raw material prices, and exchange rates. In terms of the CPI for regulated items, the new forecast supposes reductions in electricity prices at the end of the year, but the effects of indexation at higher inflation rates and the expected rises in fuel prices would continue to push this CPI group. Therefore, the new projection suggests that, in December, inflation would reach 11.3% and would decrease throughout 2023 and 2024, closing the year at 7.1% and 3.5%, respectively. These forecasts have a high level of uncertainty, due especially to the future behavior of international financial conditions, external price and cost shocks, the persistence of depreciation of the Colombian peso, the pace of adjustment of domestic demand, the indexation degree of nominal contracts, and the decisions that would be made regarding domestic fuel and electricity prices. Economic activity continues to surprise on the upside, and the projection of growth for 2022 rose from 6.9% to 7.9% but lowered for 2023 from 1.1% to 0.5%. Thus, excess demand is higher than estimated in the previous report, and it would diminish in 2023. Economic growth in the second quarterwas higher than estimated in July due to stronger domestic demand, mainly because of private consumption. Economic activity indicators for the third quarter suggest that the GDP would stay at a high level, above its potential, with an annual change of 6.4%, and 0.6% higher than observed in the second quarter. Nevertheless, these numbers reflect deceleration in its quarterly and annual growth. Domestic demand would show similar behavior, with a high value, higher than that of output. This can be explained partly by the strong behavior of private consumption and investment in machinery and equipment. In the third quarter, investment in construction would have continued with mediocre performance, which would still place it at levels lower than those observed before the pandemic. The trade deficit would have widened due to high imports with a stronger trend than that for exports. It is expected that, in the forecast horizon, consumption would decrease from its current high levels, partly as a consequence of tighter domestic financial conditions, lower repressed demand, higher exchange rate pressures on imported goods prices, and the deterioration of actual income due to the rise in inflation. Investment would continue to lag behind, without reaching the levels observed before the pandemic, in a context of high financing costs and high uncertainty. A lower projected behavior in domestic demand and the high levels of prices for oil and other basic goods that the country exports would be reflected in a reduction in the trade deficit. Due to all of this, economic growth for all of 2022, 2023, and 2024 would be 7.9%, 0.5%, and 1.3%, respectively. Expected excess demand (measured via the output gap) is estimated to be higher than contemplated in the previous report; it would diminish in 2023 and could turn negative in 2024. These estimates remain subject to a high degree of uncertainty related to global political tension, a rise in international interest rates, and the effects of this rise on demand and financial conditions abroad. In the domestic context, the evolution of fiscal policy as well as future measures regarding economic policy and their possible effects on macroeconomic imbalances in the country, among others, are factors that generate uncertainty and affect risk premia, the exchange rate, investment, and the country’s economic activity. Interest rates at several of the world’s main central banks continue to rise, some at a pace higher than expected by the market. This is in response to the high levels of inflation and their inflation expectations, which continue to exceed the targets. Thus, global growth projections are still being moderated, risk premia have risen, and the dollar continues to gain strength against other main currencies. International pressures on global inflation have heightened. In the United States, core inflation has not receded, pressured by the behavior of the CPI for services and a tight labor market. Consequently, the U.S. Federal Reserve continued to increase the policy interest rate at a strong pace. This rate is expected to now reach higher levels than projected in the previous quarter. Other developed and emerging economies have also increased their policy interest rates. Thus, international financial conditions have tightened significantly, which reflects in a widespread strengthening of the dollar, increases in worldwide risk premia, and the devaluation of risky assets. Recently, these effects have been stronger in Colombia than in the majority of its peers in the region. Considering all of the aforementioned, the technical staff of the bank increased its assumption regarding the U.S. Federal Reserve’s interest rate, reduced the country’s external demand growth forecast, and raised the projected trajectory for the risk premium. The latter remains elevated at higher levels than its historical average, within a context of high local uncertainty and of extensive financing needs from the foreign sector and the public sector. All of this results in higher inflationary pressures associated to the depreciation of the Colombian peso. The uncertainty regarding external forecasts and its impact on the country remain elevated, given the unforeseeable evolution of the conflict between Russia and Ukraine, of geopolitical tensions, and of the tightening of external financial conditions, among others. A macroeconomic context of high inflation, inflation expectations and forecasts above 3%, and a positive output gap suggests the need for contractionary monetary policy, compatible with the macroeconomic adjustment necessary to eliminate excess demand, mitigate the risk of unanchoring in inflation expectations, and guarantee convergence of inflation at the target. In comparison with the July report forecasts, domestic demand has been more dynamic, with a higher observed output level that surpasses the economy’s productive capacity. Headline and core inflation have registered surprising rises, associated with the effects of domestic and external price shocks that were more persistent than anticipated, with excess demand and indexation processes in some CPI groups. The country’s risk premium and the observed and expected international interest rates increased. As a consequence of this, inflationary pressures from the exchange rate rose, and in this report, the probability of the neutral real interest rate being higher than estimated increased. In general, inflation expectations for all terms and the bank’s technical staff inflation forecast for 2023 increased again and continue to stray from 3%. All of the aforementioned elevated the risk of unanchoring inflation expectations and could heighten widespread indexation processes that push inflation away from the target for a longer time. In this context, it is necessary to consolidate a contractionary monetary policy that tends towards convergence of inflation at the target in the forecast horizon and towards the reduction of excess demand in order to guarantee a sustainable output level trajectory. 1.2 Monetary policy decision In its September and October of 2022 meetings, Banco de la República’s Board of Directors (BDBR) decided to continue adjusting its monetary policy. In September, the BDBR decided by a majority vote to raise the monetary policy interest rate by 100 basis points (bps), and in its October meeting, unanimously, by 100bps. Therefore, the rate is at 11.0%. Boxes 1 Food inflation: a comparison with other countries

Macroeconomic summary Annual inflation continued to rise in the first quarter (8.5%) and again outpaced both market expectations and the technical staff’s projections. Inflation in major consumer price index (CPI) baskets has accelerated year-to-date, rising in March at an annual rate above 3%. Food prices (25.4%) continued to contribute most to rising inflation, mainly affected by a deterioration in external supply and rising costs of agricultural inputs. Increases in transportation prices and in some utility rates (energy and gas) can explain the acceleration in regulated items prices (8.3%). For its part, the increase in inflation excluding food and regulated items (4.5%) would be the result of shocks in supply and external costs that have been more persistent than expected, the effects of indexation, accumulated inflationary pressures from the exchange rate, and a faster-than-anticipated tightening of excess productive capacity. Within the basket excluding food and regulated items, external inflationary pressures have meaningfully impacted on goods prices (6.4%), which have been accelerating since the last quarter of 2021. Annual growth in services prices (3.8%) above the target rate is due primarily to food away from home (14.1%), which was affected by significant increases in food and utilities prices and by a rise in the legal monthly minimum wage. Housing rentals and other services prices also increased, though at rates below 3%. Forecast and expected inflation have increased and remain above the target rate, partly due to external pressures (prices and costs) that have been more persistent than projected in the January report (Graphs 1.1 and 1.2). Russia’s invasion of Ukraine accentuated inflationary pressures, particularly on international prices for certain agricultural goods and inputs, energy, and oil. The current inflation projection assumes international food prices will increase through the middle of this year, then remain high and relatively stable for the remainder of 2022. Recovery in the perishable food supply is forecast to be less dynamic than previously anticipated due to high agricultural input prices. Oil prices should begin to recede starting in the second half of the year, but from higher levels than those presented in the previous report. Given the above, higher forecast inflation could accentuate indexation effects and increase inflation expectations. The reversion of a rebate on value-added tax (VAT) applied to cleaning and hygiene products, alongside the end of Colombia’s COVID-19 health emergency, could increase the prices of those goods. The elimination of excess productive capacity on the forecast horizon, with an output gap close to zero and somewhat higher than projected in January, is another factor to consider. As a consequence, annual inflation is expected to remain at high levels through June. Inflation should then decline, though at a slower pace than projected in the previous report. The adjustment process of the monetary policy rate wouldcontribute to pushing inflation and its expectations toward the target on the forecast horizon. Year-end inflation for 2022 is expected to be around 7.1%, declining to 4.8% in 2023. Economic activity again outperformed expectations. The technical staff’s growth forecast for 2022 has been revised upward from 4.3% to 5% (Graph 1.3). Output increased more than expected in annual terms in the fourth quarter of 2021 (10.7%), driven by domestic demand that came primarily because of private consumption above pre-pandemic levels. Investment also registered a significant recovery without returning to 2019 levels and with mixed performance by component. The trade deficit increased, with significant growth in imports similar to that for exports. The economic tracking indicator (ISE) for January and February suggested that firstquarter output would be higher than previously expected and that the positive demand shock observed at the end of 2021 could be fading slower than anticipated. Imports in consumer goods, retail sales figures, real restaurant and hotel income, and credit card purchases suggest that household spending continues to be dynamic, with levels similar to those registered at the end of 2021. Project launch and housing starts figures and capital goods import data suggest that investment also continues to recover but would remain below pre-pandemic levels. Consumption growth is expected to decelerate over the year from high levels reached over the last two quarters. This would come amid tighter domestic and external financial conditions, the exhaustion of suppressed demand, and a deterioration of available household income due to increased inflation. Investment is expected to continue to recover, while the trade deficit should tighten alongside high oil and other export commodity prices. Given all of the above, first-quarter economic growth is now expected to be 7.2% (previously 5.2%) and 5.0% for 2022 as a whole (previously 4.3%). Output growth would continue to moderate in 2023 (2.9%, previously 3.1%), converging similar to long-term rates. The technical staff’s revised projections suggest that the output gap would remain at levels close to zero on the forecast horizon but be tighter than forecast in January (Graph 1.4). These estimates continue to be affected by significant uncertainty associated with geopolitical tensions, external financial conditions, Colombia’s electoral cycle, and the COVID-19 pandemic. External demand is now projected to grow at a slower pace than previously expected amid increased global inflationary pressures, high oil prices, and tighter international financial conditions than forecast in January. The Russian invasion of Ukraine and its inflationary effects on prices for oil and certain agricultural goods and inputs accentuated existing global inflationary pressures originating in supply restrictions and increased international costs. A decline in the supply of Russian oil, low inventory levels, and continued production limits on behalf of the Organization of Petroleum Exporting Countries and its allies (OPEC+) can explain increased projected oil prices for 2022 (USD 100.8/barrel, previously USD 75.3) and 2023 (USD 86.8/barrel, previously USD 71.2). The forecast trajectory for the U.S. Federal Reserve (Fed) interest rate has increased for this and next year to reflect higher real and expected inflation and positive performance in the labormarket and economic activity. The normalization of monetary policy in various developed and emerging market economies, more persistent supply and cost shocks, and outbreaks of COVID-19 in some Asian countries contributed to a reduction in the average growth outlook for Colombia’s trade partners for 2022 (2.8%, previously 3.3%) and 2023 (2.4%, previously 2.6%). In this context, the projected path for Colombia’s risk premium increased, partly due to increased geopolitical global tensions, less expansionary monetary policy in the United States, an increase in perceived risk for emerging markets, and domestic factors such as accumulated macroeconomic imbalances and political uncertainty. Given all the above, external financial conditions are tighter than projected in January report. External forecasts and their impact on Colombia’s macroeconomic scenario continue to be affected by considerable uncertainty, given the unpredictability of both the conflict between Russia and Ukraine and the pandemic. The current macroeconomic scenario, characterized by high real inflation levels, forecast and expected inflation above 3%, and an output gap close to zero, suggests an increased risk of inflation expectations becoming unanchored. This scenario offers very limited space for expansionary monetary policy. Domestic demand has been more dynamic than projected in the January report and excess productive capacity would have tightened more quickly than anticipated. Headline and core inflation rose above expectations, reflecting more persistent and important external shocks on supply and costs. The Russian invasion of Ukraine accentuated supply restrictions and pressures on international costs. This partly explains the increase in the inflation forecast trajectory to levels above the target in the next two years. Inflation expectations increased again and are above 3%. All of this increased the risk of inflation expectations becoming unanchored and could generate indexation effects that move inflation still further from the target rate. This macroeconomic context also implies reduced space for expansionary monetary policy. 1.2 Monetary policy decision Banco de la República’s board of directors (BDBR) continues to adjust its monetary policy. In its meetings both in March and April of 2022, it decided by majority to increase the monetary policy rate by 100 basis points, bringing it to 6.0% (Graph 1.5).