The Effect of Data Revisions on the Basic New Keynesian Model

Jesús Vázquez Pérez, Ramón Maria-Dolores and Juan Miguel Londoño Yarce

No 1988-088X, DFAEII Working Papers from University of the Basque Country - Department of Foundations of Economic Analysis II

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.

Keywords: NKM model; monetary policy rule; indirect inference; real-time data; non-rational forecast error (search for similar items in EconPapers)
Date: 2012
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Journal Article: The Effect of Data Revisions on the Basic New Keynesian Model (2012)
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Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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