Publisher:
University of Hamburg, Faculty of Business, Economics and Social Sciences, Chair for Economic Policy, Hamburg
Abstract:
Extending and modifying the canonical New Keynesian (NK) model, this study provides a novel approach to examine the impact of anticipated shocks called "news shocks" on business cycles. The analysis shows that news shocks are less stressful for an economy than commonly assumed. The main results are as follows: (1) triggering lower economic fluctuations than unanticipated shocks of equal size news shocks behave in a welfare-enhancing manner, and (2) purely history-dependent monetary policy rules do not constitute an effective monetary instrument to keep welfare losses to a minimum.