What influences aggregate inflation expectations of households in India?

Goyal, Ashima; Parab, Prashant

doi:10.1016/j.asieco.2020.101260

Cited by 11 publications

(9 citation statements)

References 24 publications

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“…Qualitative communications fail to drive the SPF forecasts. Significant positive effects of RBI projections support the hypothesis of the larger influence of communication variables on the shorter-horizon expectations (Badarinza & Buchmann, 2009; Hubert, 2015b; Goyal & Parab, 2021).…”

Section: Estimation Of Forecast Determinantssupporting

confidence: 53%

Central Bank Communications and Professional Forecasts: Evidence From India

Goyal

Parab

2021

Journal of Emerging Market Finance

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We analyze the influence of qualitative and quantitative communications of the Reserve Bank of India (RBI) on inflation expectations of professional forecasters and draw out implications for policy. Estimating Carroll-type epidemiological models of expectation formation under information rigidities, we get a large speed of adjustment of professional forecasters’ expectations. Analysis of the determinants of inflation forecasts, inflation surprises, and forecaster disagreement reveals significant influence of quantitative RBI communications in the form of inflation projections. This effect is prominent for shorter-horizon forecasts and after adoption of flexible inflation targeting. Macroeconomic fundamentals like lagged inflation and repo rate also significantly influence inflation forecasts. Choice of words in the RBI monetary policy statements has more impact after October 2016, when the monetary policy committee became the decision-making body. JEL Classification: E31, E52, E58

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Section: Estimation Of Forecast Determinantssupporting

confidence: 53%

Central Bank Communications and Professional Forecasts: Evidence From India

Goyal

Parab

2021

Journal of Emerging Market Finance

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“…2022, Goyal andParab 2021a). Goyal and Parab (2021a), however, find evidence that in the long-run as household inflation expectations converge to an equilibrium level, core inflation has the largest effect on them 14 , although as yet household inflation expectations do not affect other variables. There is also evidence that expectations converge faster in an IT regime and for an EM (Goyal and Parab, 2020).…”

Section: Anchoring Of Expectationsmentioning

confidence: 99%

“…Households tend to have a stagflationary view, so they expect inflation to rise when growth falls (Coibon et al, 2022). Higher interest rates raise inflation expectations (Goyal and Parab, 2021a). Second-round effects occur only if supply shocks are high and sustained (Goyal and Parab, 2020).…”

Section: Implementing Inflation Targeting In Emerging Marketsmentioning

confidence: 99%

“…There is the inflation target itself, inflation projections, and various types of guidance. Even though inflation is more volatile and forecasts in EMs are less reliable, there is evidence they have a larger impact (Goyal and Parab 2021a).…”

Section: Transmission Through Expectationsmentioning

confidence: 99%

“…Household and SPF expectations are naïve (backward-looking), but show the influence of RBI communications (Goyal and Parab, 2021a). In most countries, household expectations normally substantially exceed realized inflation (Coibon et.…”

Section: Anchoring Of Expectationsmentioning

confidence: 99%

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Flexible Inflation Targeting: Concepts and application in India

Goyal

2022

IPPR

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The paper analyses issues important in adapting flexible inflation targeting (FIT) to emerging markets. This sets the context in which the evolution of FIT in India and its performance record are analysed. The dominance of supply shocks implies flexibility and fiscal-monetary coordination are necessary. Coordination can reduce the output sacrifice of disinflation, even as it aids fiscal consolidation. Communication has a major role in guiding expectations towards the inflation target. Strict implementation of inflation targeting imposed a large output sacrifice in the early years, but reversal to flexible implementation, in line with the original agreement, succeeded in keeping inflation largely within announced tolerance bands with a good growth recovery. Forecasting has improved and errors in both directions indicate the absence of bias. While there were supportive events in the initial years, such as the 2014 crash in oil prices and softening of food price inflation, the regime has also survived adverse periods of pandemic related supply-chain snarls and rising oil prices. A long period of disinflation and output sacrifice need not be necessary to anchor inflation expectations when there is complementary supply-side action. Since policy has to respond if inflation persistently exceeds the tolerance band, this also contributes to anchoring inflation expectations.

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Determinants of disagreement: Learning from inflation expectations survey of households

Singh,

Bandyopadhyay

2023

Journal of Forecasting

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For efficient conduct of monetary policy, the central banks need to manage inflation expectations. Disagreement is a measure of how well inflation expectations are anchored. Thus, for effective management of inflation expectations, identifying the determinants of disagreement and understanding the process of its formation are crucial. In this paper, we present an empirical analysis of the households inflation expectations survey data conducted by the Reserve Bank of India. Our findings are as follows: (i) The disagreement is highly persistent; (ii) the households' inflation forecasts depend on their day to day purchasing experiences; (iii) in high inflation periods, they tend to overpredict; (iv) inflation targeting seems to reduce disagreement; and (v) the gender and age of the agents seem to have an effect on disagreement. Finally, contrary to the findings in developed economies, we observe a negative correlation of disagreement with inflation. We provide a theoretical explanation for it supported with an empirical analysis.

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What influences aggregate inflation expectations of households in India?

Cited by 11 publications

References 24 publications

Central Bank Communications and Professional Forecasts: Evidence From India

Central Bank Communications and Professional Forecasts: Evidence From India

Flexible Inflation Targeting: Concepts and application in India

Determinants of disagreement: Learning from inflation expectations survey of households

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