News versus sunspot shocks in a New Keynesian model

Lilia Karnizova

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2010, vol. 4, No 2010-19, 27 pages

Abstract: Separately, news and sunspot shocks have been shown empirically to be determinants of changes in expectations. This paper considers both of them together in a simple New Keynesian monetary business cycle model. A full set of rational expectations solutions is derived analytically. The analytical characterization allows an explicit comparison of news about future monetary policy and sunspots. The key distinction between the shocks lies in their relation to the realized policy shock. If monetary policy is 'passive', both types of shocks affect model dynamics through forecast errors. The effect of the news on forecast errors is not unique, and the dynamics induced by news and sunspot shocks can be observationally equivalent. If monetary policy is 'active', the sunspots are irrelevant, and the model responses to the news shocks are unique. In both cases, news shocks strengthen the endogenous propagation of the model, since anticipation of future changes prolongs agents' reaction.

Keywords: News shocks; sunspots; expectations; monetary policy; indeterminacy (search for similar items in EconPapers)
JEL-codes: E32 E47 E52 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://dx.doi.org/10.5018/economics-ejournal.ja.2010-19
https://www.econstor.eu/bitstream/10419/36704/1/630917167.pdf (application/pdf)

Related works:
Working Paper: News versus sunspot shocks in a New Keynesian model (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifweej:201019

DOI: 10.5018/economics-ejournal.ja.2010-19

Access Statistics for this article

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020) is currently edited by Dennis J. Snower

More articles in Economics - The Open-Access, Open-Assessment E-Journal (2007-2020) from Kiel Institute for the World Economy (IfW Kiel) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().