Kiel Working Papers, Kiel Institute for World Economics
No 1497:
On the Non-Optimality of Information: An Analysis of the Welfare Effects of Anticipated Shocks in the New Keynesian Model
Hans-Werner Wohltmann and Roland Winkler
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
Keywords: Anticipated Shocks, Optimal Monetary Policy, Sticky Prices, Welfare Analysis; (follow links to similar papers)
JEL-Codes: E31,; E32,; E52; (follow links to similar papers)
43 pages, March 2009
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