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Data Revisions, Gradualism, and US Inflation Pressure in Real Time

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  • Pierre L. Siklos

    ()
    (Department of Economics, Wilfrid Laurier University and)

  • Diana N. Weymark

    ()
    (Department of Economics, Vanderbilt University)

Abstract

Uncertainties associated with the informational content of real-time data and the impact of policy initiatives on expectations have been offered as rationales for gradualism in monetary policy. Our objective is to assess these potential explanations quantitatively. Focusing on inflation as the key variable of interest to central banks, we construct indices of inflation pressure to characterize the state of the economy before and after the implementation of monetary policy. Using six vintages of US data, we analyze changes in the information content of economic data across revisions and the importance of expectations in determining the impact of monetary policy.

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File URL: http://www.accessecon.com/pubs/VUECON/vu08-w16R.pdf
File Function: Revised version, 2008
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0816.

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Date of creation: Sep 2008
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Handle: RePEc:van:wpaper:0816

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Inflation pressure; counterfactuals; real time data; gradualism; monetary policy;

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  1. Siklos,Pierre L., 2002. "The Changing Face of Central Banking," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521780254.
  2. Glenn D. Rudebusch, 2001. "Term structure evidence on interest rate smoothing and monetary policy inertia," Working Paper Series, Federal Reserve Bank of San Francisco 2001-02, Federal Reserve Bank of San Francisco.
  3. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  4. Croushore, Dean & Evans, Charles L., 2006. "Data revisions and the identification of monetary policy shocks," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(6), pages 1135-1160, September.
  5. Weymark, Diana N., 1995. "Estimating exchange market pressure and the degree of exchange market intervention for Canada," Journal of International Economics, Elsevier, Elsevier, vol. 39(3-4), pages 273-295, November.
  6. Jondeau E. & Le Bihan H. & Galles C., 2004. "Assessing Generalized Method-of-Moments Estimates of the Federal Reserve Reaction Function," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 22, pages 225-239, April.
  7. Dean Croushore, 2008. "Revisions to PCE inflation measures: implications for monetary policy," Working Papers 08-8, Federal Reserve Bank of Philadelphia.
  8. Andrew Ang & Geert Bekaert & Min Wei, 2006. "Do macro variables, asset markets, or surveys forecast inflation better?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-15, Board of Governors of the Federal Reserve System (U.S.).
  9. Markku Lanne, 2006. "Nonlinear dynamics of interest rate and inflation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(8), pages 1157-1168.
  10. Kala Krishna & Tor Winston, 1998. "A New Model of Quality," NBER Working Papers 6580, National Bureau of Economic Research, Inc.
  11. Taylor, John B. & Williams, John C., 2010. "Simple and Robust Rules for Monetary Policy," Handbook of Monetary Economics, Elsevier, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 15, pages 829-859 Elsevier.
  12. Söderlind, Paul & Söderström, Ulf & Vredin, Anders, 2003. "Taylor Rules and the Predictability of Interest Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3934, C.E.P.R. Discussion Papers.
  13. Diana N. Weymark & Mototsugu Shintani, 2004. "Measuring Inflation Pressure and Monetary Policy Response: A General Approach Applied to US Data 1966 - 2001," Vanderbilt University Department of Economics Working Papers, Vanderbilt University Department of Economics 0424, Vanderbilt University Department of Economics.
  14. Weymark, Diana N, 1998. "A General Approach to Measuring Exchange Market Pressure," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 106-21, January.
  15. Pierre L. Siklos & Martin T. Bohl, 2007. "Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule," Working Paper Series, The Rimini Centre for Economic Analysis 32-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
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