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Partially Anticipated Monetary Policy Shocks – Are They Stabilizing or Destabilizing?

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  • Offick Sven
  • Wohltmann Hans-Werner

    (Department of Economics, Christian-Albrechts-University Kiel, Olshausenstr. 40, 24098 Kiel, Germany)

Abstract

This paper uses a dynamic framework of a small open economy to study the volatility effects of partially anticipated monetary policy shocks in which the public has imperfect information about the size and/or the timing of the future expansionary policy intervention. Our two main results are as follows: (i) Partially anticipated monetary policy shocks may be stabilizing, i. e. lead to a lower volatility than a fully anticipated monetary policy shock of the same form. (ii) However, we typically obtain a trade off in volatilities such that a simultaneous stabilization of inflation and output is not possible. If the public underestimates (overestimates) the size of the shock, output (inflation) may be stabilized. Our results imply that the central bank may have an incentive to withhold information from the public about the true central bank’s intention.

Suggested Citation

  • Offick Sven & Wohltmann Hans-Werner, 2016. "Partially Anticipated Monetary Policy Shocks – Are They Stabilizing or Destabilizing?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(1), pages 95-127, February.
    • Handle: RePEc:jns:jbstat:v:236:y:2016:i:1:p:95-127
    DOI: 10.1515/jbnst-2015-1004
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    More about this item

    Keywords

    partial anticipation; news shocks; continuous-time models; monetary policy; volatility; central bank communication;
    All these keywords.

    JEL classification:

    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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