Abstract: Frictional goods markets play a crucial role in determining capacity utilization and total factor productivity (TFP). The trade-off between goods prices and household search effort is key to goods market matching, influencing TFP throughout the business cycle. This paper develops a New-Keynesian DSGE model with a capital workweek, worker effort, and fixed cost of production, expanding it to include goods market search-and-matching (SaM). Using Bayesian estimation and capacity utilization survey data, I compare different capacity utilization channels. The results show that incorporating goods market SaM improves the data fit, complementing the worker effort channel, while the capital workweek and fixed cost of production channels are less significant than suggested in previous literature. The share of TFP fluctuations explained by demand and labor shocks increases while it decreases for technology shocks - a pattern that intensifies in the convexity of the endogenous price elasticity of demand as goods market frictions rise. These findings highlight the importance of frictional goods markets in explaining the divergence between technology and TFP over the business cycle.

Keywords: Total factor productivity, capacity utilization, search-and-matching, Bayesian estimation

JEL Codes: E22, E23, E3, J20

Abstract: We extend the New-Keynesian (NK) model by introducing costly household search effort and imperfect goods-market matching. Shopping effort and available capacity enter a CES matching function, which endogenizes both the price elasticity of demand and capacity utilization. The framework nests the benchmark NK model and delivers two key dynamic channels. First, search-price growth creates an inflationary wedge in the Euler equation, making aggregate demand much less interest-sensitive: the effective Euler slope is up to ten times flatter than in the benchmark. Second, firms face a trade-off between price markups and capacity utilization which steepens the Phillips curve even after accounting for higher Rotemberg costs: the output-gap Phillips slope is about 12% larger. The results highlight the importance of separating shopping time from home production as the sign of their impact changes. Quantitatively, monetary policy is less powerful, TFP shocks look more RBC-like, and the model reproduces procyclical search effort and capacity utilization. A trade-off emerges: matching utilization well can tilt the labor wedge toward procyclicality because the endogenous (countercyclical) demand elasticity offsets the textbook NK labor-demand channel. Search-driven shocks microfound cost-push dynamics which decreases the need for artifical shocks to the elasticity of intratemporal substitution.

Keywords: Goods search-and-matching, endogenous price elasticity, capacity utilization, Euler equation slope, search-augmented Phillips curve, search-driven cost-push shocks

JEL Codes: E21, E22, E31, E32, E52

Abstract: The data indicates that goods market intermediation plays a crucial role in the allocation of goods, evidenced by the incomplete pass-through of marginal costs to consumer prices. This is reflected in the highly cyclical nature of the real PPI—the ratio of consumer prices to final demand producer prices. I develop a wholesaler-retailer-consumer framework that explains the joint behavior of real producer prices, consumer price inflation, and producer price inflation, while also aligning with macroeconomic aggregates. Neither sticky producer nor consumer prices alone can account for the data’s joint behavior. The model generates significant incomplete pass-through of marginal costs to prices, which intensifies over the business cycle. Frictions in retail and wholesale markets amplify one another, making the intermediation process reliant on their joint dynamics. Retailers balance frictions in both markets, absorbing shocks to optimize intertemporal intermediation. This process plays a significant role in the transmission of monetary policy.

Keywords: Inflation, incomplete price pass-through, search-and-matching, inventories

JEL Codes: E20, E31, E32

Abstract: The Danube Region faces the dual challenge of enhancing cohesion and competitiveness through deeper cooperation, with less developed economies needing to catch up to wealthier counterparts. High capital formation is essential, requiring sustained investment in countries with lower GDP per capita and improvements in the investment climate to attract domestic and foreign direct investment (FDI). Maintaining cost competitiveness demands aligning wage growth with labor productivity, especially in countries with low technological capacity. Growth, labor market, and educational reforms are crucial for job creation. Better connectivity, accessibility, and resource efficiency can transform the region into a competitive zone, while reducing energy losses, diversifying sources, and increasing renewables can lower import dependency. Despite improved finance access since 2013, SMEs still face challenges, highlighting the need for efficient resource allocation. Although cooperation has intensified, untapped potential within the EU Strategy for the Danube Region requires greater transparency, coordination, and inclusion of less developed areas.