The relevance of real-time data in estimating reaction functions for the euro area
AbstractThis paper tackles the issue of the incompleteness of information available to the central bank when taking its monetary policy decisions. It is focused on euro area data and based on the simplistic assumption of the central bank following a simple monetary policy rule Ã -la-Taylor. Along the lines of the work by Orphanides (2001), our aim is to assess whether estimates of reaction functions which are carried out using revised data for the euro area can be misleading. In essence, the analysis yields indications which are consistent with the findings by Orphanides for the United States. First of all, the results found suggest that it would be preferable for a central bank not to attach too much weight on output gap measures in policy analysis, given that such measures are subject to large revisions over time. Moreover, the coefficients of a simple Taylor rule estimated in real time differ quite considerably from those related to the same rule estimated on the basis of ex post revised data. More precisely, a coefficient for inflation larger than one (which is a requirement for a unique equilibrium in many theoretical models) in real time is found only in case a forward-looking specification based on the Survey of Professional Forecasters is used. On the contrary, when using revised data, the same result is obtained if the Taylor rules include the current inflation rate. This shows how a misleading inference can occur when the appropriate available data are not taken into account. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal The North American Journal of Economics and Finance.
Volume (Year): 16 (2005)
Issue (Month): 3 (December)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620163
Other versions of this item:
- Gerdesmeier, Dieter & Roffia, Barbara, 2004. "The relevance of real-time data in estimating reaction functions for the Euro area," Frankfurt School - Working Paper Series 56, Frankfurt School of Finance and Management.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998.
"Monetary policy rules in practice Some international evidence,"
European Economic Review,
Elsevier, vol. 42(6), pages 1033-1067, June.
- Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
- Lawrence J. Christiano & Terry J. Fitzgerald, 2003.
"The Band Pass Filter,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
- Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper 9906, Federal Reserve Bank of Cleveland.
- Tom Doan, . "CFFILTER: RATS procedure to perform band pass filter using Christiano-Fitzgerald method," Statistical Software Components RTS00034, Boston College Department of Economics.
- Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band Pass Filter," NBER Working Papers 7257, National Bureau of Economic Research, Inc.
- Coenen, Guenter & Levin, Andrew & Wieland, Volker, 2003.
"Data Uncertainty and the Role of Money as an Information Variable for Monetary Policy,"
CFS Working Paper Series
2003/07, Center for Financial Studies (CFS).
- Coenen, Gunter & Levin, Andrew & Wieland, Volker, 2005. "Data uncertainty and the role of money as an information variable for monetary policy," European Economic Review, Elsevier, vol. 49(4), pages 975-1006, May.
- Gunter Coenen & Andrew Levin & Volker Wieland, 2001. "Data uncertainty and the role of money as an information variable for monetary policy," Finance and Economics Discussion Series 2001-54, Board of Governors of the Federal Reserve System (U.S.).
- Coenen, Günter & Levin, Andrew & Wieland, Volker, 2003. "Data Uncertainty and the Role of Money as an Information Variable for Monetary Policy," CEPR Discussion Papers 3812, C.E.P.R. Discussion Papers.
- Coenen, Günter & Levin, Andrew T. & Wieland, Volker, 2001. "Data uncertainty and the role of money as an information variable for monetary policy," Working Paper Series 0084, European Central Bank.
- Dieter Gerdesmeier & Barbara Roffia, 2004.
"Empirical Estimates of Reaction Functions for the Euro Area,"
Swiss Journal of Economics and Statistics (SJES),
Swiss Society of Economics and Statistics (SSES), vol. 140(I), pages 37-66, March.
- Gerdesmeier, Dieter & Roffia, Barbara, 2003. "Empirical estimates of reaction functions for the euro area," Working Paper Series 0206, European Central Bank.
- Orphanides, Athanasios, 2003.
"Historical monetary policy analysis and the Taylor rule,"
Journal of Monetary Economics,
Elsevier, vol. 50(5), pages 983-1022, July.
- Athanasios Orphanides, 2003. "Historical monetary policy analysis and the Taylor rule," Finance and Economics Discussion Series 2003-36, Board of Governors of the Federal Reserve System (U.S.).
- Ullrich, Katrin, 2003. "A Comparison Between the Fed and the ECB: Taylor Rules," ZEW Discussion Papers 03-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Newey, Whitney K & West, Kenneth D, 1987.
"A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix,"
Econometric Society, vol. 55(3), pages 703-08, May.
- Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Athanasios Orphanides, 1998.
"Monetary policy rules based on real-time data,"
Finance and Economics Discussion Series
1998-03, Board of Governors of the Federal Reserve System (U.S.).
- Gerdesmeier, Dieter & Roffia, Barbara, 2004. "Taylor rules for the euro area: the issue of real-time data," Discussion Paper Series 1: Economic Studies 2004,37, Deutsche Bundesbank, Research Centre.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.