Monetary policy rules based on real-time data

This paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules. Usi ng Taylor's ride as an example, I demonstrate that real-time policy recomme ndations 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 behav ior 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 po licy rules.