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Qualitative and quantitative Central Bank communications and professional forecasts: Evidence from India

Ashima Goyal and Prashant Parab ()
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Prashant Parab: Indira Gandhi Institute of Development Research

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: We analyze the influence of qualitative and quantitative communications of the Reserve Bank of India on inflation expectations of professional forecasters, and draw out implications for the impact of policy variables on expectations. Estimating Carroll-type epidemiological models of expectation formation, we find 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 the adoption of flexible inflation targeting regime. Macroeconomic fundamentals like lagged inflation and Repo rate too play a significant role in influencing inflation forecasts. Choice of words in the RBI monetary policy statements has more impact since October 2016, after monetary policy committee became the decision-making body.

Keywords: Inflation expectations; Survey of professional forecasters; Central bank (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021-04
New Economics Papers: this item is included in nep-cba, nep-isf, nep-mac and nep-mon
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