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Deciphering Indian inflationary expectations through text mining: an exploratory approach

Author

Listed:
  • Ashok Banerjee

    (IIM Calcutta)

  • Ayush Kanodia

    (Stanford University)

  • Partha Ray

    (IIM Calcutta)

Abstract

Inflationary forecasts tend to play a crucial role in macroeconomic and financial decision/policy making. In particular, in an inflation-targeting framework, it is of paramount importance. While traditionally, model-based and survey-based inflation expectations are being used, in recent times, a literature has emerged to forecast various macro-aggregates using text-based sentiment estimates. Taking a cue from this approach, in this paper we attempt to decipher inflationary sentiments using text mining from two leading financial dailies, viz., the Economic Times and Business Line. We consciously avoid using social media news due to severe challenges and high noise-to-signal ratio. In our algorithm we aggregate CPI basket level (viz., food, fuel, cloth & miscellaneous) sentiment into an overall index of inflation, adapting techniques from natural language processing. Our results from this text-based model indicate significant success in tracking actual inflation.

Suggested Citation

  • Ashok Banerjee & Ayush Kanodia & Partha Ray, 2021. "Deciphering Indian inflationary expectations through text mining: an exploratory approach," Indian Economic Review, Springer, vol. 56(1), pages 49-66, June.
    • Handle: RePEc:spr:inecre:v:56:y:2021:i:1:d:10.1007_s41775-021-00106-9
    DOI: 10.1007/s41775-021-00106-9
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Inflation sentiments; India; Machine learning; Natural language processing; Text mining;
    All these keywords.

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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