Real-time data for Norway: Challenges for monetary policy

Abstract

Monetary policy conducted in real time has to take into account the preliminary nature of recent national accounts data. Not only recent data, but also numbers dating many years back are potentially subject to revision. This means that there is a danger that an important part of the central bank's information set is flawed for a substantial period of time. In this paper, we present results based on quarterly vintages of real-time data for Norway from 1993Q1 to 2003Q4. In the spirit of Orphanides and van Norden [Orphanides, A., & van Norden, S. (2002). The unreliability of output gap estimates in real-time. Review of Economics and Statistics, 84(4), 569–583], we analyze how data revisions, the accumulation of new observations in real time, and model uncertainty affect the reliability of output gap estimates. We find that total revisions of output gap estimates are heavily influenced by uncertainty about the trend at the end of the sample and that data revisions are of less importance, i.e., they are of smaller magnitude and show less persistence, than other sources of output gap revisions. Finally, we discuss the implications of output gap uncertainty for monetary policy using a small New Keynesian macroeconomic model.