Errors in the measurement of the output gap and the design of monetary policy
We exploit data on historical revisions to real-time estimates of the output gap to examine the implications of measurement error for the design of monetary policy, using the Federal Reserve’s model of the U.S. economy, FRB/US. Measurement error brings about a substantial deterioration in economic p...
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| Veröffentlicht in: | Journal of economics and business 2000, Vol.52 (1), p.117-141 |
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| container_end_page | 141 |
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| container_title | Journal of economics and business |
| container_volume | 52 |
| creator | Orphanides, Athanasios Porter, Richard D Reifschneider, David Tetlow, Robert Finan, Frederico |
| description | We exploit data on historical revisions to real-time estimates of the output gap to examine the implications of measurement error for the design of monetary policy, using the Federal Reserve’s model of the U.S. economy, FRB/US. Measurement error brings about a substantial deterioration in economic performance, although the problem can be mitigated somewhat by reducing the coefficient on the output gap in policy rules. We also show that it is usually optimal to place some weight on the level of the output gap in the conduct of policy, but under extreme conditions it may be preferable to focus on output growth. |
| doi_str_mv | 10.1016/S0148-6195(99)00031-4 |
| format | Article |
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| ispartof | Journal of economics and business, 2000, Vol.52 (1), p.117-141 |
| issn | 0148-6195 1879-1735 |
| language | eng |
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| source | RePEc; Access via ScienceDirect (Elsevier) |
| subjects | Economic models Errors Federal Reserve monetary policy Input output analysis Interest rate rules Interest rates Monetary policy Output gap measurement Policy evaluation Simulation Studies |
| title | Errors in the measurement of the output gap and the design of monetary policy |
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