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Imperfect Information, Real-Time Data and Monetary Policy in the Euro Area


  • Corresponding author: Stefano Neri, Banca d'Italia, Economic Outlook and Monetary Policy Department. Via Nazionale, 91, 00184, Rome, Italy. Email:

  • The authors thank Paolo Del Giovane, Eugenio Gaiotti, Dale Henderson, Pelin Ilbas, Giulio Nicoletti, Lucrezia Reichlin, Lars Svensson, John Williams and all the participants at the Norges Bank Workshop on ‘Optimal Monetary Policy’ 21–22 November 2008, the 10th EABCN Workshop on ‘Uncertainty over the Business Cycle’ 30–31 March 2009 held at the European Central Bank, and the 16th International Conference of the Society for Computational Economics held in London on 15–7 July 2010 for all the comments and suggestions. The views expressed in this article are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Eurosystem or the Banca d'Italia.


An important concern for the European Central Bank (ECB), and all central banks alike, is the necessity of making decisions in real-time under conditions of great uncertainty about the underlying state of the economy. We address this concern by estimating on real-time data a New Keynesian model for the euro area under the assumption of imperfect information. In comparison to models that maintain the assumption of perfect information and are estimated on ex-post revised, we find that: (i) the estimated policy rule becomes more inertial and less aggressive towards inflation; (ii) the ECB faces a more severe trade-off in the stabilisation of inflation and the output gap.