Many economic data series are revised as more comprehensive information becomes available, leaving policymakers to make decisions based on data they know are noisy or imprecise. Revisions to data series also complicate the evaluation of historical policy actions as actions taken based on data available at the time may differ considerably from recommendations based on revised data. Sharon Kozicki, vice president and economist at the Federal Reserve Bank of Kansas City focuses on revisions to data that policymakers often examine in “How do Data Revisions Affect the Evaluation and Conduct of Monetary Policy?” The article is featured in the first quarter edition of The Economic Review. Kozicki’s article is the first to examine the policy implications of revisions in two widely used benchmarks of resource utilization – the Congressional Budget Office estimates of potential output and the natural rate of unemployment. The article is also the first to consider how data revisions affect policy decisions through changes in estimates of the equilibrium real rate of interest. The article finds that revisions to data can lead to policy regret – instances when revised data may suggest alternative actions may have been preferable. To reduce instances of policy regret, the article suggests that it may be desirable to make policy actions less sensitive to highly uncertain data. Approaches that hold promise include responding to data averaged over several quarters, setting policy based on measures of activity that are less uncertain and reducing the responsiveness of policy to noisy information. The article and past editions of the Economic Review are available on the Bank’s Web site at www.kansascityfed.org. # # # Return to www.kansascityfed.org
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