Real-time data for Norway: Output gap revisions and challenges for monetary policy

Tom Bernhardsen () and Øyvind Eitrheim
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Tom Bernhardsen: Research Department Norges Bank (The Central Bank of Norway)

No 274, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: Monetary policy conducted in real time has to take into account the preliminary nature of recent national accounts data. Not only recent data, but also figures dating many years back are potentially subject to revisions. This means that there is a danger that an important part of the central bank's information set is flawed for a substantial period of time. In this paper we present results based on quarterly vintages of real-time data for Norway from 1993Q1 to 2003Q4. We describe the nature and causes of the data revisions and investigate whether the revisions are true martingale differences or whether they can be forecasted. In the spirit of Orphanides and van Norden (2002), we analyze how data revisions and model uncertainty affect the reliability of output gap estimates. We find that total revisions of output gap estimates are heavily influenced by uncertainty about the trend at the end of the sample and that data revisions are of less importance, i.e., they are of smaller magnitude and show less persistence than other sources of output gap revisions. Finally, we analyse the implications of output gap uncertainty for monetary policy using a small New Keynesian macroeconomic model

Keywords: Monetary policy; output gap; real-time data; interest rate rules (search for similar items in EconPapers)
JEL-codes: C53 E37 E52 (search for similar items in EconPapers)
Date: 2005-11-11
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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