We propose an easy-to-use search friction in the goods markets in medium-sized New Keynesian models. This friction allows increases in measured productivity in response to increases in expenditures via higher search effort from households. As a result markups can become procyclical and labor...

We study the role of lack commitment in shaping the allocations of the canonical incomplete-markets sovereign default model of Eaton and Gersovitz (1981). We show how the equilibriumwith commitment to the circumstances under which default can be undertaken involves a verydifferent set of...

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...