Review of Economic Studies Vol. 93 No. 2 2026
Demand Shocks as Technology Shocks
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 total factor productivity (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.
- DOI
- 10.1093/restud/rdaf045
- Volume
- 93
- Issue
- 2
- Pages
- 798-832
- Language
- en
- Sources
- openalex crossref