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GDP data revisions and forward-looking monetary policy in Switzerland

  • Kugler, Peter
  • Jordan, Thomas J.
  • Lenz, Carlos
  • Savioz, Marcel R.

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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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 16 (2005)
Issue (Month): 3 (December)
Pages: 351-372

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Handle: RePEc:eee:ecofin:v:16:y:2005:i:3:p:351-372
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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  1. Orphanides, Athanasios, 2000. "The quest for prosperity without inflation," Working Paper Series 0015, European Central Bank.
  2. Eric M. Leeper & Tao Zha, 2002. "Modest Policy Interventions," NBER Working Papers 9192, National Bureau of Economic Research, Inc.
  3. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  4. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. Ehrmann, Michael & Smets, Frank, 2001. "Uncertain potential output: implications for monetary policy," Working Paper Series 0059, European Central Bank.
  8. 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.
  9. Frank Smets, 2002. "Output gap uncertainty: Does it matter for the Taylor rule?," Empirical Economics, Springer, vol. 27(1), pages 113-129.
  10. 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.
  11. 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.
  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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