HOW INFORMATIVE ARE QUANTIFIED SURVEY DATA? EVIDENCE FROM RBI HOUSEHOLD INFLATION EXPECTATIONS SURVEY

Abstract

Quantification 1 of the ordinal survey responses on inflation expectations is an important preliminary step for undertaking further macroeconomic analysis of the data. In this paper, we briefly describe the standard quantification methods along with the underlying assumptions. We also propose two new methods for quantification. We then apply these methods to quantify the IESH 2 data collected by the Reserve Bank of India. An interesting fact that emerges from this exercise is that simpler quantification methods are found to perform better than more complex methods for IESH data. Also, the methods with time-varying weights or time-varying thresholds, as the case may be, work significantly better.