Volatility effects of news shocks in New Keynesian models with optimal monetary policy

Sven Offick and Hans-Werner Wohltmann

Economics Letters, 2016, vol. 147, issue C, 78-82

Abstract: This paper studies the volatility implications of anticipated cost-push shocks (i.e. news shocks) in a hybrid New Keynesian model both under optimal unrestricted and discretionary monetary policy. In both regimes, the volatility of the output gap and the central bank’s loss are increasing with the anticipation horizon under sufficiently flexible inflation targeting. By contrast, under nearly strict inflation targeting, an anticipated cost-push shock leads to a smaller central bank’s loss than an unanticipated shock of the same size if additionally the Phillips curve is sufficiently backward-looking.

Keywords: Anticipated shocks; Optimal monetary policy; Volatility (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Volatility effects of news shocks in New Keynesian models with optimal monetary policy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:147:y:2016:i:c:p:78-82

DOI: 10.1016/j.econlet.2016.08.018

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