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A State Space Approach To The Policymaker's Data Uncertainty Problem

Alastair Cunningham, Chris Jeffery, George Kapetanios and Vincent Labhard ()
Additional contact information
Alastair Cunningham: Bank of England
Chris Jeffery: Bank of England
George Kapetanios: Queen Mary and WestÂ…eld College and Bank of England

No 168, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group

Abstract: The paper describes the challenges that uncertainty over the true value of key macroeconomic variables poses for policymakers and the way in which they may form and update their priors in light of a range of indicators. Speci…cally, it casts the data uncertainty challenge in state space form and illustrates - in this setting - how the policymaker’s data uncertainty problem is related to any constraints that an optimising statistical agency might face in resolving its own data uncertainty challenge. The paper uses this intuition to motivate a set of identifying assumptions that might be used in the practical application of the Kalman Filter to form and update priors on the basis of a variety of indicators. In doing so, it moves beyond the simple methodology for deriving "best guesses" of the true value of economic variables outlined in Ashley, Driver, Hayes, and Je¤ery (2005)

Date: 2007-02-02
New Economics Papers: this item is included in nep-cba, nep-ecm and nep-ets
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http://repec.org/mmf2006/up.10287.1159526154.pdf (application/pdf)

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