url
4
Jul
2014

SIMPLE MONETARY POLICY RULES UNDER MODEL UNCERTAINTY: Simple Policy Rules 6

Information Lags. In the preceding analysis, we have side-stepped one potentially important issue: policymakers may not have full knowledge of the current state of the economy, but instead must act upon data that comes in with a lag of weeks, months, or even longer. As McCallum (1997) has emphasized, policy rules must be operational in the sense that they can be implemented by policymakers in real time. In this paper, we do not examine the implications of using mismeasured data, but instead focus on the impact of information lags.

A one-quarter information lag probably provides an accurate representation of the time delay with which information becomes available to policymakers. The first Advance‚ÄĚrelease of quarterly NIPA data occurs within one month of the end of the quarter, and monthly labor market and consumer price index (CPI) data are available by the middle of the following month. Other weekly and monthly data become available with short lags. To make the contrast to the results based on complete current information as stark as possible, we restrict ourselves to policies that depend only on lagged inflation, output gaps, and interest rates. We do not consider rules that incorporate current-quarter forecasts based on lagged information; if anything, this introduces an additional upward bias in our assessment of the true costs associated with informational lags.

Information Lags. In the preceding analysis, we have side-stepped one potentially important issue: policymakers may not have full knowledge of the current state of the economy, but instead must act upon data that comes in with a lag of weeks, months, or even longer. As McCallum (1997) has emphasized, policy rules must be operational in the sense that they can be implemented by policymakers in real time. In this paper, we do not examine the implications of using mismeasured data, but instead focus on the impact of information lags. A one-quarter information lag probably provides an accurate representation of the time delay with which information becomes available to policymakers. The first Advance‚ÄĚrelease of quarterly NIPA data occurs within one month

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Kevin J. Brandon

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