Rational expectations models with anticipated shocks and optimal policy: a general solution method and a New Keynesian example

Hans-Werner Wohltmann and Roland Winkler ()

No 1507, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

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 (search for similar items in EconPapers)
JEL-codes: C61 C63 E52 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (14)

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Working Paper: Rational expectations models with anticipated shocks and optimal policy: a general solution method and a new Keynesian example (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1507

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