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On the Non-Optimality of Information: An Analysis of the Welfare Effects of Anticipated Shocks in the New Keynesian Model

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Author Info
Hans-Werner Wohltmann
Roland Winkler

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Abstract

This paper compares the welfare effects of anticipated and unanticipated cost-push shocks within the canonical New Keynesian model with optimal monetary policy. We find that, for empirically plausible degrees of nominal rigidity, the anticipation of a future cost-push shock leads to a higher welfare loss than an unanticipated shock. A welfare gain from the anticipation of a future cost shock may only occur if prices are sufficiently flexible. We show analytically that this result holds although unanticipated shocks lead to higher negative impact effects on welfare than anticipated shocks

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Publisher Info
Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1497.

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Length: 43 pages
Date of creation: Mar 2009
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Handle: RePEc:kie:kieliw:1497

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Related research
Keywords: Anticipated Shocks; Optimal Monetary Policy; Sticky Prices; Welfare Analysis;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  6. Nir Jaimovich & Sergio Rebelo, 2006. "Can News About the Future Drive the Business Cycle?," NBER Working Papers 12537, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers 14215, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Wohltmann, Hans-Werner & Winkler, Roland, 2008. "Anticipated and unanticipated oil price shocks and optimal monetary policy," Economics Working Papers 2008,05, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
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    Other versions:
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