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The Effect of Data Revisions on the Basic New Keynesian Model

Author

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  • Vázquez, Jesús
  • María-Dolores, Ramón
  • Londoño, Juan M.

Abstract

This paper proposes an extended version of the basic New Keynesian monetary (NKM) model which contemplates revision processes of output and inflation data in order to assess the importance of data revisions on the estimated monetary policy rule parameters and the transmission of policy shocks. Our empirical evidence based on a structural econometric approach suggests that although the initial announcements of output and inflation are not rational forecasts of revised output and inflation data, ignoring the presence of non well-behaved revision processes may not be a serious drawback in the analysis of monetary policy in this framework. However, the transmission of inflation-push shocks is largely affected by considering data revisions. The latter being especially true when the nominal stickiness parameter is estimated taking into account data revision processes.

Suggested Citation

  • Vázquez, Jesús & María-Dolores, Ramón & Londoño, Juan M., 2012. "The Effect of Data Revisions on the Basic New Keynesian Model," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 235-249.
    • Handle: RePEc:eee:reveco:v:24:y:2012:i:c:p:235-249
    DOI: 10.1016/j.iref.2012.03.005
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    4. Emilia Tomczyk, 2013. "End of sample vs. real time data: perspectives for analysis of expectations," Working Papers 68, Department of Applied Econometrics, Warsaw School of Economics.

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    More about this item

    Keywords

    NKM model; monetary policy rule; indirect inference; real-time data; (non-)rational forecast error;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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