GDP data revisions and forward-looking monetary policy in Switzerland

This paper analyzes forward-looking rules for Swiss monetary policy in a small structural VAR model consisting of four variables taking into account data revisions for GDP. First, the paper develops an analytical method to analyze the effect of data-revision errors in GDP on the ex-ante or conditional inflation-output-growth volatility trade-off and applies it to Swiss data. Second, the effects of different targets in a forward-looking monetary policy on ex-post or unconditional volatility of inflation and output growth is explored with a simulation exercise. In general, the results suggest that focusing monetary policy on GDP growth instead of inflation may lead to an inefficient policy with both increased medium-term inflation and GDP growth volatility in the presence of GDP data revisions.