Rationality of inflation expectations: an interpretation of Google Trends data

Abstract

This study derives inflation expectations from the internet search query data of Google Trends and validates the rationality criteria for India. The empirical analysis is carried out with proper consideration of persistence characteristics of the data for the period from January 2006 to April 2018. The results indicate the derived inflation expectations fulfil the properties of rationality. The results have far-reaching policy implications for the better conduct of monetary policy in favour of using real-time internet search data as an indicator of inflation expectations.