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Households' Inflation Expectations in India: Role of Economic Policy Uncertainty and Global Financial Uncertainty Spill-over

Taniya Ghosh (), Sohini Sahu and Siddhartha Chattopadhyay ()

Working Papers from eSocialSciences

Abstract: Inflation expectations are an important marker for the conduct of monetary policy. Using a Bayesian structural VAR-X model that includes the inflation expectations of general public based on the Inflation Expectations Survey of Households (IESH), in a first of its kind of study using this dataset, the paper analyze the macroeconomic factors that determine inflation expectations in India with special focus on economic uncertainty. Besides the standard macroeconomic factors like real output, inflation rate and monetary policy, the paper also include economic policy uncertainty as a possible endogenous variable in our model that influences inflation expectations, while international financial volatility that has spill-over effects is an exogenous variable. Using non-recursive identification strategy, we find that economic policy uncertainty has considerable effects on households' expectations of inflation and in a longer horizon the international financial volatility also matters.

Keywords: BVAR; Inflation Expectations; Economic Policy Uncertainty; Price Puzzle; monetary policy; Bayesian structural VAR-X model; Inflation Expectations Survey of Households (IESH); inflation expectations; macroeconomic factors; financial volatility. (search for similar items in EconPapers)
Date: 2017-07
Note: Institutional Papers
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