Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/30325 
Year of Publication: 
2010
Series/Report no.: 
Economics Discussion Papers No. 2010-15
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
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.
Subjects: 
News shocks
sunspots
expectations
monetary policy
indeterminacy
JEL: 
E32
E47
E52
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

Files in This Item:
File
Size
193.25 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.