Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/28325 
Year of Publication: 
2009
Series/Report no.: 
Kiel Working Paper No. 1497
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
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.
Subjects: 
Anticipated Shocks
Optimal Monetary Policy
Sticky Prices
Welfare Analysis
JEL: 
E31
E32
E52
Document Type: 
Working Paper

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