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GDP Data Revisions and Forward-Looking Monetary Policy in Switzerland

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Author Info

  • Thomas J. Jordan
  • Peter Kugler

    ()

  • Carlos Lenz

    ()

  • Marcel R. Savioz

    (University of Basel)

Abstract

This paper analyzes forward-looking rules for Swiss monetary policy in a small structural VAR model consisting of four variables taking into account data revisions for GDP. First, the paper develops an analytical method to analyze the effect of data revision errors in GDP on the ex ante or conditional inflation-output-growth volatility trade-off and applies it to Swiss data. Second, the effects of different targets in a forward-looking monetary policy on ex post or unconditional volatility of inflation and output growth is explored by a simulation exercise. In general, the results obtained suggest that focusing monetary policy on GDP growth instead on inflation may lead to an inefficient policy with both increased medium term inflation and GDP growth volatility in the presence of GDP data revisions.

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Bibliographic Info

Paper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2005/05.

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Date of creation: 2005
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Handle: RePEc:bsl:wpaper:2005/05

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Postal: Peter-Merian-Weg 6, Postfach, CH-4002 Basel
Web page: http://wwz.unibas.ch
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Keywords: Structural VAR; forward-looking monetary policy; efficiency frontier; GDP data revisions;

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References

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  1. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden).
  2. Eric M. Leeper & Tao Zha, 2002. "Modest Policy Interventions," NBER Working Papers 9192, National Bureau of Economic Research, Inc.
  3. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  4. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  5. Frank Smets, 1998. "Output gap uncertainty: does it matter for the Taylor rule?," BIS Working Papers 60, Bank for International Settlements.
  6. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  7. Thomas J. Jordan & Peter Kugler & Carlos Lenz & Marcel R. Savioz, 2005. "The Analysis of Forward-Looking Monetary Policy in a SVAR Framework," Working papers 2005/10, Faculty of Business and Economics - University of Basel.
  8. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  9. Michael Ehrmann and Frank Smets, 2001. "Uncertain Potential Output: Implications for Monetary Policy," Computing in Economics and Finance 2001 8, Society for Computational Economics.
  10. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  11. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November.
  12. Peter Kugler & Thomas J. Jordan, 2004. "Structural Vector Autoregressions and the Analysis of Monetary Policy Interventions: The Swiss Case," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(I), pages 67-87, March.
  13. Peter Kugler & Georg Rich, 2002. "Monetary Policy Under Low Interest Rates: The Experience of Switzerland in the late 1970s," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(III), pages 241-269, September.
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Citations

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Cited by:
  1. Katrin Assenmacher-Wesche, 2008. "Modeling Monetary Transmission in Switzerland with a Structural Cointegrated VAR Model," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 144(II), pages 197-246, June.
  2. Marek Rusnak, 2013. "Nowcasting Czech GDP in Real Time," Working Papers 2013/06, Czech National Bank, Research Department.
  3. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 72-100, March.
  4. Marek RUSNAK, 2013. "Revisions to the Czech National Accounts: Properties and Predictability," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(3), pages 244-261, July.

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