Abstract
For a country with a modest open economy like Pakistan, the significance of outlooks in determining inflation dynamic forces is investigated in this paper. For the years 1972 to 2014, the study examines the New Keynesian Phillips Curve (NKPC) in both conventional and hybrid variants. The output gap and labor income are two indicators of economic growth. The Dicky Fuller test are used to check for variable stationary, and the model's long-run parameters were determined using the generalized method of moments. The outcomes of the study demonstrate that the NKPC model appropriately describes inflation dynamics in Pakistan and is data-driven. The production gap was found to be an ineffective proxy for evaluating economic activity, although worker income shares appeared to be highly positive.
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