Economics, Econometrics and Finance
4 years ago

Forward-looking data in monetary policy may worsen decision-making in crises.

SSRN Electronic Journal
On the Use of Current or Forward-Looking Data in Monetary Policy: A Behavioural Macroeconomic Approach
Paul De Grauwe, Yuemei Ji

Paper Summary

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The article explores whether using future or current data is better for making monetary policy decisions. By using a model that looks at economic behavior, the researchers found that the choice depends on the type of monetary policy in place. In a strict focus on controlling inflation, using future data can lead to poorer decisions compared to a policy that also considers other goals like employment. Additionally, using real-time data can help improve the quality of monetary policy decisions, especially in a strict inflation-focused policy.