Thus, empirical analyses of inflation dynamics often use the following type of specification: Inflation rate for the current term = γ × (the expected rate of inflation for the next term) + (1 – γ) × (the inflation rate for the previous term) + β × (the output gap for the current term) + α × the rate of change in import prices, where α, β, and γ are parameters.
A frequent criticism of this type of specification is that the inclusion of the inflation rate in the previous term lacks microfoundations and its role is therefore difficult to interpret.