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 ()

No 1497, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

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 (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: On the Non-Optimality of Information: An Analysis of the Welfare Effects of Anticipated Shocks in the New Keynesian Model (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1497

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