Analyzing the Effect of Inflation Expectations on Actual Inflation within the New Keynesian Phillips Curve Framework

Document Type : Research Article

Authors

Faculty of Economics, University of Tehran, Tehran, Iran

10.22034/jepr.2025.144753.1312

Abstract

The present study seeks to analyze the effect of inflation expectations on actual inflation, using a more or less standard form of the New Keynesian Phillips Curve. To this end, after describing the evolution of incorporating expectations into the Phillips Curve and reviewing several recent empirical studies, an attempt has been made to estimate a version of the Phillips Curve for the post–Bretton Woods period (1974–2024) in Iran, in which a form of expected inflation is included. Three proxies for inflation expectations have been used. The empirical results are broadly consistent with a standard New Keynesian Phillips Curve, and all three proxies for inflation expectations have a positive and statistically significant effect on actual inflation. Therefore, without emphasizing that expectations act as an exogenous factor influencing inflation, the present study considers inflation expectations to be important in the dynamics of inflation. The empirical results also show that the effects of the output gap and cost-push pressures on inflation are positive and statistically significant. 

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History

  • Receive Date: 18 October 2025
  • Revise Date: 22 November 2025
  • Accept Date: 06 December 2025
  • Publish Date: 22 December 2025

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