Shifting data: a challenge for monetary policymakers

A familiar old saw about the conduct of monetary policy is that it's like trying to drive a car while looking only in the rearview mirror. The idea is that policymakers are trying to steer a course that will keep the economy close to full employment with low, stable inflation, while their only knowledge of the road ahead is based on data about the past. ; As if this situation weren't challenging enough, the rearview mirror sometimes gives a distorted reflection, in the sense that the data policymakers see at any one point in time are often later revised. This Economic Letter discusses a particular example, the annual revision to the national accounts in July 2005, which included a substantial upward revision to previously benign inflation estimates, and it lays out some ways that policymakers can address the challenge of changing data.