The Effect of Data Revisions on the Basic New Keynesian Model
This paper proposes an extended version of the basic New Keynesian monetary (NKM) model which contemplates revision processes of output and inflation data in order to assess the importance of data revisions on the estimated monetary policy rule parameters and the transmission of policy shocks. Our e...
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| Published in: | International review of economics & finance 2012-10, Vol.24, p.235-249 |
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| Main Authors: | , , |
| Format: | Article |
| Language: | eng |
| Subjects: | |
| Online Access: | Get full text |
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| Summary: | This paper proposes an extended version of the basic New Keynesian monetary (NKM) model which contemplates revision processes of output and inflation data in order to assess the importance of data revisions on the estimated monetary policy rule parameters and the transmission of policy shocks. Our empirical evidence based on a structural econometric approach suggests that although the initial announcements of output and inflation are not rational forecasts of revised output and inflation data, ignoring the presence of non well-behaved revision processes may not be a serious drawback in the analysis of monetary policy in this framework. However, the transmission of inflation-push shocks is largely affected by considering data revisions. The latter being especially true when the nominal stickiness parameter is estimated taking into account data revision processes.
► A version of the New Keynesian model with revision processes of data is analyzed. ► The role of data revisions on the estimated policy parameters is assessed. ► Results show that real-time data of output and inflation are not rational forecasts. ► Ignoring this feature is not a serious drawback for monetary policy analysis. ► Transmission of inflation-push shocks is affected by considering data revisions. |
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| ISSN: | 1059-0560 1873-8036 |