This paper considers a framework in which the central bank observes a potentially large set of noisy indicators but is uncertain about the state of the economy. We evaluate the welfare implications of exploiting all available information to assess the state of the economy. We show that it is...

We calibrate and simulate the model's response to `demand' shocks such as shifts in the marginal efficiency of investment, government spending shocks and news shocks. We show that investment-specific shocks can generate business cycle fluctuations that are broadly consistent with aggregate data.

expectations? We find that the answer to both questions is negative: Standard medium scale DSGE models have difficulties explaining the evolution of inflation expectations, and that the fit is even worse when we introduce imperfect information.

We develop a model featuring search frictions and a nondegenerate labor supply decision along the extensive margin, and argue that it does a reasonable job of matching labor market flows between employment, unemployment and out of the labor force. Persistent idiosyncratic productivity shocks...

We build a model that incorporates both labor supply and frictions and use it to assess the effects of various tax and transfer programs on aggregate employment and unemployment. In particular, we assess the debate between Prescott and Ljungqvist and Sargent about the relative importance of...