Data uncertainty and the role of money as an information variable for monetary policy
Andrew Levin (andrew.t.levin@dartmouth.edu),
Volker Wieland and
Günter Coenen
No 84, Working Paper Series from European Central Bank
Abstract:
This paper shows that money can play an important role as an information variable when initial output data are measured with error and subject to revision. Using an estimated model of the euro area we find that current output estimates may be substantially improved by including money growth in the information set. The gain in precision, however, depends on the magnitude of the output measurement error relative to the money demand shock. We find noticable but small improvements in output estimates, if the uncertainty due to money demand shocks corresponds to the estimated variance obtained from the money demand equation. Money plays a quantitatively more important role with regard to output estimation if we allow for a contribution of monetary analysis in reducing uncertainty due to money demand shocks. In this case, money also helps to reduce uncertainty about output forecasts JEL Classification: E31, E52, E58, E61
Keywords: euro area; Kalman filter; macroeconomic modelling; measurement error; monetary policy rules; rational expectations (search for similar items in EconPapers)
Date: 2001-11
Note: 241047
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Citations: View citations in EconPapers (62)
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Related works:
Journal Article: Data uncertainty and the role of money as an information variable for monetary policy (2005)
Working Paper: Data Uncertainty and the Role of Money as an Information Variable for Monetary Policy (2003)
Working Paper: Data Uncertainty and the Role of Money as an Information Variable for Monetary Policy (2003)
Working Paper: Data uncertainty and the role of money as an information variable for monetary policy (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:200184
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