Inflation expectations in India: learning from household tendency surveys
Links to Fileshttps://ideas.repec.org/p/tow/wpaper/2018-03.html
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Type of Workapplication/pdf
DepartmentTowson University. Department of Economics
Citation of Original PublicationAbhiman Das & Kajal Lahiri & Yongchen Zhao, 2018. "Inflation Expectations in India: Learning from Household Tendency Surveys," Working Papers 2018-03, Towson University, Department of Economics, revised Aug 2018.
SubjectsHierarchical ordered probit model
Inflation (Finance) -- India
Using a large household survey conducted by the Reserve Bank of India since 2005, we estimate the dynamics of aggregate inflation expectations over a volatile inflation regime. A simple average of the quantitative responses produces biased estimates of the official inflation data. We therefore estimate expectations by quantifying the reported directional responses. For quantification, we use the Hierarchical Ordered Probit model, in addition to the balance statistic. We find that the quantified expectations from qualitative forecasts track the actual inflation rate better than the averages of the quantitative forecasts, highlighting the filtering role of qualitative tendency surveys. We also report estimates of disagreement among households. The proposed approach is particularly suitable in emerging economies where inflation tends to be high and volatile.