The Reserve Bank of India placed on its website a Working Paper titled, “State-Level Inflation Forecasts for India: Based on Data from Inflation Expectations Survey of Households” under the Reserve Bank of India Working Paper Series.
This paper proposes a new approach to modelling inflation expectations, which not only uses centre-wise survey data and state-wise inflation data but also redistributes the inflation expectation of respondents suitably to gain further precision.
For most of the states/union territories, the results show clear reduction in the quantum of nowcast/ forecast errors in state-level nowcasts/ forecasts obtained using the proposed methodology when compared with the errors of the survey forecasts, bias-adjusted survey forecasts and linear regression-based forecasts. The percentage of occurrences of directional matches of the nowcasts/ forecasts and the realised inflation figures are also noticeable.
