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

  • Hans-Werner Wohltmann
  • Roland Winkler

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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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
Date of revision:
Handle: RePEc:kie:kieliw:1497
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  17. Ball, Laurence, 1994. "Credible Disinflation with Staggered Price-Setting," American Economic Review, American Economic Association, vol. 84(1), pages 282-89, March.
  18. Den Haan, Wouter & Kaltenbrunner, Georg, 2007. "Anticipated Growth and Business Cycles in Matching Models," CEPR Discussion Papers 6063, C.E.P.R. Discussion Papers.
  19. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers 14215, National Bureau of Economic Research, Inc.
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  21. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
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