Econometric analysis of switching expectations in UK inflation

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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 languageEnglish
Pages (from-to)651-673
JournalOxford Bulletin of Economics and Statistics
Issue number3
Early online date13 Dec 2021
Publication statusPublished - Jun 2022

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