Measurement Errors and Monetary Policy: Then and Now
37 Pages Posted: 30 Nov 2015
Date Written: 2015-11-05
Should policymakers and applied macroeconomists worry about the difference between real-time and final data? We tackle this question by using a VAR with time-varying parameters and stochastic volatility to show that the distinction between real-time data and final data matters for the impact of monetary policy shocks: The impact on final data is substantially and systematically different (in particular, larger in magnitude for different measures of real activity) from the impact on real-time data. These differences have persisted over the last 40 years and should be taken into account when conducting or studying monetary policy.
Keywords: real-time data, time-varying parameters, stochastic volatility, impulse responses
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