I study the implications of productivity shocks in a model where agents observe the aggregate level of productivity but not its permanent and transitory components separately. The model`s predictions under learning differ substantially from those under full information and are in line with...

The interaction between monetary and fiscal policy and the associated uncertainty about this interaction have been put on center stage by the recent financial crisis and the associated recession. In our model agents learn about both fiscal and monetary policy rules via the Kalman Filter. In...