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Inflation expectations of households: do they influence wage-price dynamics in India?

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  • Sitikantha Pattanaik
  • Silu Muduli
  • Soumyajit Ray

Abstract

This paper examines the usefulness of survey-based measures of inflation expectations to predict inflation using hybrid versions of New Keynesian Phillips Curve (NKPC). While both 3 months ahead and 1-year ahead inflation expectations of households emerge statistically significant in explaining and predicting inflation in India, effectively they work as substitutes of backward looking expectations given that household expectations are found to be largely adaptive. Unlike in other countries, this paper does not find much evidence on flattening of the Phillips curve. Also, no robust evidence is found on expectations induced wage pressures influencing CPI inflation.

Suggested Citation

  • Sitikantha Pattanaik & Silu Muduli & Soumyajit Ray, 2020. "Inflation expectations of households: do they influence wage-price dynamics in India?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 13(3), pages 244-263, September.
    • Handle: RePEc:taf:macfem:v:13:y:2020:i:3:p:244-263
    DOI: 10.1080/17520843.2020.1720264
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    Cited by:

    1. Ashima Goyal & Prashant Parab, 2019. "Inflation convergence and anchoring of expectations in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-023, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Behera, Harendra Kumar & Patra, Michael Debabrata, 2022. "Measuring trend inflation in India," Journal of Asian Economics, Elsevier, vol. 80(C).
    3. Ashima Goyal & Prashant Mehul Parab, 2019. "Modeling Consumers' Confidence and Inflation Expectations," Economics Bulletin, AccessEcon, vol. 39(3), pages 1817-1832.
    4. Goyal, Ashima & Parab, Prashant, 2021. "What influences aggregate inflation expectations of households in India?," Journal of Asian Economics, Elsevier, vol. 72(C).
    5. Pradeep, Siddhartha, 2022. "Impact of diesel price reforms on asymmetricity of oil price pass-through to inflation: Indian perspective," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    6. Amrendra Pandey & Jagadish Shettigar & Amarnath Bose, 2021. "Evaluation of the Inflation Forecasting Process of the Reserve Bank of India: A Text Analysis Approach," SAGE Open, , vol. 11(3), pages 21582440211, July.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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