Demand Shocks as Technology Shocks

Yan Bai, José-Víctor Ríos-Rull and Kjetil Storesletten

No 32169, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide a macroeconomic theory where demand for goods has a productive role. A search friction prevents perfect matching between producers and potential customers. Larger demand induces more search, which in turn increases GDP and measured TFP. We embed the product-market friction in a standard neoclassical model and estimate it using Bayesian techniques. Business cycles are driven by preference shocks, true technology shocks, and investment-specific shocks. Preference shocks have qualitatively similar effects as true productivity shocks. These shocks account for a large share of the fluctuations in consumption, GDP, and measured TFP and can be identified using shopping time data.

JEL-codes: E21 E22 E30 (search for similar items in EconPapers)
Date: 2024-02
New Economics Papers: this item is included in nep-dge and nep-mac
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