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

  • Wohltmann, Hans-Werner
  • Winkler, Roland C.

This paper compares the welfare effects of anticipated and unanticipated cost-push shocks in 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 analytically show that this surprising result holds although unanticipated shocks lead to higher negative impact effects on welfare than anticipated shocks.

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File URL: https://econstor.eu/bitstream/10419/27676/1/EWP-2008-21.pdf
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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2008,21.

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Date of creation: 2008
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Handle: RePEc:zbw:cauewp:7469
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  15. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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  17. 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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  19. Ippei Fujiwara & Yasuo Hirose & Mototsugu Shintani, 2009. "Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach," Vanderbilt University Department of Economics Working Papers 0921, Vanderbilt University Department of Economics.
  20. Wohltmann, Hans-Werner & Winkler, Roland C., 2008. "Anticipated and unanticipated oil price shocks and optimal monetary policy," Economics Working Papers 2008,05, Christian-Albrechts-University of Kiel, Department of Economics.
  21. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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  24. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
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