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Working Paper

On the Non-Optimality of Information: An Analysis of the Welfare Effects of Anticipated Shocks in the New Keynesian Model

Kiel Working Papers, 1497

Authors

  • Wohltmann
  • H.-W.
  • Winkler
  • R.

Publication Date

JEL Classification

E31 E32 E52

Key Words

Anticipated Shocks

Optimal Monetary Policy

sticky prices

welfare analysis

Wohlfahrtsanalyse

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.

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