Rational Expectations Models with Anticipated Shocks and Optimal Policy

Roland Winkler () and Hans-Werner Wohltmann

VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century from Verein für Socialpolitik / German Economic Association

Abstract: This paper investigates optimal policy in the presence of anticipated (or news) shocks. We determine the optimal unrestricted and restricted policy response in a general rational expectations model and show that, if shocks are news shocks, the optimal unrestricted control rule under commitment contains a forward-looking element. As an example, we lay out a micro-founded hybrid New Keynesian model and show i) that anticipated cost-push shocks entail higher welfare losses than unanticipated shocks of equal size and ii) that the inclusion of forward-looking elements enhances distinctly the performance of simple optimized interest rate rules.

JEL-codes: C61 E32 E52 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc12:62030

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