Inflation Expectations in India: Learning From Household Tendency Surveys

40 Pages Posted: 9 Sep 2018

See all articles by Abhiman Das

Abhiman Das

Indian Institute of Management Ahmedabad

Kajal Lahiri

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics

Yongchen Zhao

Towson University - Department of Economics

Date Written: August 28, 2018

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.

Keywords: Hierarchical Ordered Probit Model, Quantification, Tendency Survey, Disagreement, Indian Inflation

JEL Classification: C25, D84, E3

Suggested Citation

Das, Abhiman and Lahiri, Kajal and Zhao, Yongchen, Inflation Expectations in India: Learning From Household Tendency Surveys (August 28, 2018). Available at SSRN: https://ssrn.com/abstract=3240005 or http://dx.doi.org/10.2139/ssrn.3240005

Abhiman Das

Indian Institute of Management Ahmedabad ( email )

Vastraour
Ahmedabad, 380015
India

Kajal Lahiri (Contact Author)

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics ( email )

Department of Economics
1400 Washington Avenue
Albany, NY 12222
United States
518-442 4758 (Phone)
518-442 4736 (Fax)

HOME PAGE: http://www.albany.edu/~klahiri

Yongchen Zhao

Towson University - Department of Economics ( email )

Towson, MD 21204
United States

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