Data Revisions and the Monetary Policy Rule: An analysis based on an extension of the basic New Keynesian model?

Abstract. This paper proposes an extended version of the basic New Keynesian monetary (NKM) model which contemplates revision processes of output and inflation data in order to assess the importance of data re-visions on the estimated monetary policy rule parameters and the trans-mission of policy shocks. Our empirical evidence based on a structural econometric approach suggests that although the initial announcements of output and inflation are not rational forecasts of revised data of out-put and inflation, ignoring the presence of non well-behaved revision processes may not be a serious drawback in the analysis of monetary policy in this framework. Key words: NKM model, monetary policy rule, indirect inference, real-time data, (non-)rational forecast error