Econometric analysis of switching expectations in UK inflation

Adriana Cornea-Madeira; Joao Antonio Rodrigues Madeira

doi:10.1111/obes.12479

Econometric analysis of switching expectations in UK inflation

Adriana Cornea-Madeira, Joao Antonio Rodrigues Madeira

Research output: Contribution to journal › Article › peer-review

Abstract

We estimate with UK data a Phillips curve model with backward-looking and forward-looking methods of determining inflation expectations and with
agents switching between these based on their recent performance. We find that, while on average backward-looking and forward-looking methods have about equal weight, there are considerable movements in the weight given to each method. We show this model has better in-sample fit than other Phillips curve models and this is robust to the methodology chosen. The model out-of-sample forecasts on certain dates do better than other
Phillips curve models and the Atkeson and Ohanian model.

Original language	English
Pages (from-to)	651-673
Journal	Oxford Bulletin of Economics and Statistics
Volume	84
Issue number	3
Early online date	13 Dec 2021
DOIs	https://doi.org/10.1111/obes.12479
Publication status	Published - Jun 2022

Bibliographical note

© 2021 Oxford University and John Wiley & Sons Ltd. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details

Access to Document

10.1111/obes.12479

Embargoed Document

Econometric Analysis of UK Inflation Expectations
Accepted author manuscript, 517 KB
Embargo ends: 13/12/23

Cite this

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abstract = "We estimate with UK data a Phillips curve model with backward-looking and forward-looking methods of determining inflation expectations and withagents switching between these based on their recent performance. We find that, while on average backward-looking and forward-looking methods have about equal weight, there are considerable movements in the weight given to each method. We show this model has better in-sample fit than other Phillips curve models and this is robust to the methodology chosen. The model out-of-sample forecasts on certain dates do better than otherPhillips curve models and the Atkeson and Ohanian model.",

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