Abstract: Measured productivity fluctuates far more over the business cycle than technology. This paper shows that these movements mainly reflect coordination failures in the goods market. I develop a New Keynesian DSGE model, inspired by Barro’s (2025) critique of frictionless goods markets, in which households allocate time between work and search, firms supply unmatched capacity, and trades form through goods-market search and matching. Matching efficiency determines capacity utilization and thus measured TFP. Bayesian estimation on U.S. and Euro Area data - using survey-based capacity utilization - shows that incorporating goods-market frictions sharply improves model fit and reduces the need for cost-push shocks. The interaction of sticky posted prices and flexible search prices generates a state-dependent demand elasticity, while the coordination channel links search effort to effective output: excess demand raises TFP by increasing match rates, excess supply lowers it by leaving capacity idle. The model identifies Barro–Grossman (1971) regimes in the data: the missing deflation after 2008 reflects a low-efficiency, classical-unemployment regime, whereas the post-COVID inflation surge arises from a high-tightness, repressed-inflation regime. Thus, short-run productivity is coordination-driven, and policy operates in a state-dependent environment where stabilizing market efficiency is as important as managing demand.

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.