Latent class analyisis for reliable measure of inflation expectation in the indian public

TL;DR

This paper evaluates the use of latent class analysis to improve the reliability of household inflation expectation surveys conducted by the Reserve Bank of India, addressing response biases and measurement errors.

Contribution

It introduces an optimal latent class model to identify and categorize reliable and biased responses in inflation expectation surveys.

Findings

Identified a model with optimal performance for survey analysis

Detected and categorized response biases in inflation expectation data

Enhanced measurement accuracy of inflation expectations

Abstract

The main aim of this paper is to inspect the properties of survey based on households inflation expectations, conducted by Reserve Bank of India. It is theorized that the respondents answers are exaggerated by extreme response bias. Latent class analysis has been hailed as a promising technique for studying measurement errors in surveys, because the model produces estimates of the error rates associated with a given question of the questionnaire. I have identified a model with optimum performance and hence categorize the objective as well as reliable classifiers or otherwise.