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This paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules. Using Taylor's rule as an example, I demonstrate that real-time policy recommendations differ considerably from those obtained with ex post revised data. Further, estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the Federal Reserve in real time. These results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules. (JEL E52, E58)

National accounts data are always revised. Not only recent data, but also figures dating many years back can be revised substantially. This means that there is a danger that an important part of the central bank's information set is flawed for a long period of time. In this paper we present a data base consisting of various vintages of real-time data from 1993Q1 to 2003Q4. We describe the nature of the data revisions, the causes of the revisions, and investigate whether the revisions are true martingale differences, or whether they can be forecasted. In the spirit of Orphanides and van Norden (2002), we analyze how data revisions and model uncertainty affect the reliability of output gap estimates. We also compare Taylor type interest rate rules based on real-time data versus final data and assess the consequences for monetary policy if policy was conducted using this type of interest rate rules. Finally, we analyze the implications of output gap uncertainty for monetary policy using a small New Keynesian macroeconomic model.

We use real-time annual data on the fiscal balance, government current spending, current revenues and net capital outlays as published at a half yearly frequency in the OECD Economic Outlook for 25 OECD countries. For each fiscal year t we have a number of forecasts, a first release, and subsequent revisions. It turns out that revisions in the fiscal balance data are not affected by elections. However, we do find that governments spend more than reported before an election which provides support for moralhazard type of political budget cycle (PBC) models: through hidden efforts the incumbent tries to enhance his perceived competence. We also find that governments had higher current receipts than reported before an election, which is in line with adverse-selection type of PBC models in which incumbents signal competence through expansionary fiscal policy before the elections.