Kiel Working Papers, Kiel Institute for World Economics
No 1507:
Rational Expectations Models with Anticipated Shocks and Optimal Policy: A General Solution Method and a New Keynesian Example
Hans-Werner Wohltmann and Roland Winkler
Abstract: The purpose of this paper is to show how to solve linear
dynamic rational expectations models with anticipated shocks by using the
generalized Schur decomposition method. Furthermore, we determine the
optimal unrestricted and restricted policy responses to anticipated shocks.
We demonstrate our solution method by means of a micro-founded hybrid New
Keynesian model and show that anticipated cost-push shocks entail higher
welfare losses than unanticipated shocks of equal size
Keywords: Anticipated Shocks, Optimal Monetary Policy, Rational Expectations, Generalized Schur Decomposition, Welfare Effects; (follow links to similar papers)
JEL-Codes: C61,; C63,; E52; (follow links to similar papers)
27 pages, April 2009
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