Publication

This paper compares the welfare effects of anticipated and unanticipated cost-push shocks within the canonical New Keynesian model with optimal monetary policy. The authors 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. They conclude that welfare gain from the anticipation of a future cost shock may only occur if prices are sufficiently flexible.