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Volume 64, Issue 6

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Historical Analysis of Monetary Policy Reaction Functions: Do Real-Time Data Matter?

Čapek, Jan

Year: 2014   Volume: 64   Issue: 6   Pages: 457-475

Abstract: This paper investigates the differences between parameter estimates of monetary policy reaction functions using real-time data and those using revised data. The model is a New Keynesian DSGE model of the Czech, Hungarian and Polish small open economies in interaction with the euro area. Unlike the related literature, this paper uses separate vintages of real-time data for all successive estimations. The paper reports several statistically significant differences between parameter estimates of monetary policy reaction functions based on real-time data and those based on revised data. The parameter whose estimate is the most affected by the usage of real-time data is preference for output growth. This result is common across the countries in the study. The results suggest that real-time data matter when conducting a historical analysis of monetary policy preferences.

JEL classification: C11, E58, C82

Keywords: real-time data, revision, DSGE model, Bayesian estimation, recursive estimation

RePEc: http://ideas.repec.org/a/fau/fauart/v64y2014i6p457-475.html

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