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Inflation Expectations in India: Learning from Household Tendency Surveys

Author

Listed:
  • Abhiman Das

    (Indian Institute of Management Ahmedabad)

  • Kajal Lahiri

    () (Department of Economics, University at Albany, State University of New York)

  • Yongchen Zhao

    () (Department of Economics, Towson University)

Abstract

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.

Suggested Citation

  • Abhiman 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.
  • Handle: RePEc:tow:wpaper:2018-03
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    References listed on IDEAS

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    Cited by:

    1. Oscar Claveria, 2020. "Business and consumer uncertainty in the face of the pandemic: A sector analysis in European countries," Papers 2012.02091, arXiv.org.
    2. Ashima Goyal & Prashant Parab, 2019. "Modeling heterogeneity and rationality of inflation expectations across Indian households," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-02, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Ashima Goyal & Prashant Parab, 2019. "Modeling consumers' confidence and inflation expectations," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-025, Indira Gandhi Institute of Development Research, Mumbai, India.

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    More about this item

    Keywords

    Hierarchical ordered probit model; Quantification; Tendency survey; Disagreement; Indian inflation.;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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