Inflation expectations in India: Learning from household tendency surveys

We use a large household survey that is being conducted by the Reserve Bank of India since 2005 to 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. We perform quantification by using 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 the disagreement among households. The proposed approach is particularly suitable in emerging economies, where inflation tends to be high and volatile. (C) 2019 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.