Measurement errors and monetary policy: Then and now

Abstract

Should policymakers and applied macroeconomists worry about the difference between real-time and final data? We tackle this question by using a VAR with time-varying parameters and stochastic volatility to show that the distinction between real-time data and final data matters for the impact of monetary policy shocks: The impact on final data is substantially and systematically different (in particular, larger in magnitude for different measures of real activity) from the impact on real-time data. These differences have persisted over the last 40 years and should be taken into account when conducting or studying monetary policy.