This paper presents an aggregate demand-driven model of business cycles that provides a new explanation for the procyclicality of productivity, and simultaneously predicts large welfare losses from monetary non-neutrality.The key features of the model are an input-output production structure, imperfect competition, counteityclical markups, and, for some results, statedependent price rigidity.True technical efficiency is procyclical even though production takes place with constant returns, without technology shocks or technological externalities.The paper has observable implications that distinguish it empirically from related work.These implications are generally supported by data from U.S. manufacturing industries.
Stored only when both papers are in the corpus — 423 citations exist upstream.