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News Shocks and Optimal Simple Rules

Author

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  • Winkler Roland C.

    (Department of Money and Macroeconomics, Goethe University Frankfurt, Grüneburgplatz 1, House of Finance, 60323 Frankfurt am Main)

  • Wohltmann Hans-Werner

    (Department of Economics, Christian-Albrechts-University Kiel, Olshausenstraße 40, 24098 Kiel)

Abstract

This paper evaluates the performance of optimal simple policy rules in the presence of news shocks. It is shown that the inclusion of forward-looking elements enhances the performance of simple optimized interest rate rules when agents learn about future disturbances in advance. We provide a rationale for this result by demonstrating that, if shocks are news shocks, the optimal unrestricted control rule under commitment contains as a basic principle a forward-looking element.

Suggested Citation

  • Winkler Roland C. & Wohltmann Hans-Werner, 2011. "News Shocks and Optimal Simple Rules," Review of Economics, De Gruyter, vol. 62(1), pages 1-11, April.
    • Handle: RePEc:lus:reveco:v:62:y:2011:i:1:p:1-11
    DOI: 10.1515/roe-2011-0102
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    Cited by:

    1. Langer, Viktoria C.E., 2016. "News shocks, nonseparable preferences, and optimal monetary policy," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 237-246.
    2. Offick, Sven & Wohltmann, Hans-Werner, 2015. "Volatility effects of news shocks in (B)RE models with optimal monetary policy," Economics Working Papers 2015-07, Christian-Albrechts-University of Kiel, Department of Economics.
    3. Offick, Sven & Wohltmann, Hans-Werner, 2016. "Volatility effects of news shocks in New Keynesian models with optimal monetary policy," Economics Letters, Elsevier, vol. 147(C), pages 78-82.

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