News versus sunspot shocks in a New Keynesian model

Artikel

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Economics: The Open-Access, Open-Assessment E-Journal ; ISSN: 1864-6042 ; Volume: 4 ; Year: 2010 ; Issue: 2010-19 ; Pages: 1-27 ; Kiel: Kiel Institute for the World Economy (IfW)

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Monetary Policy
• Subject: News shocks ; sunspots ; expectations ; monetary policy ; indeterminacy ; Rationale Erwartung ; Information ; Sunspot ; Ungleichgewichtstheorie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Karnizova, Lilia
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2010

Further information

• DOI: doi:10.5018/economics-ejournal.ja.2010-19
• Handle: http://hdl.handle.net/10419/36704
• Last update: 10.03.2025, 11:43 AM CET