heterogeneous qualities in response to demand shocks alter the total factor productivity of the economy through a process of … stabilization of demand shocks becomes suboptimal as demand creates its own supply; fiscal multiplier can be substantially larger … than 1; an opportunistic monetary policymaker, who adopts a lenient policy reaction to positive demand shocks, but provides …

productivity and demand shocks that are disciplined by the data. This approach allows us to overcome previous criticism from … analysis of models that employ only an idiosyncratic productivity shock and calibrate solely using data from the price …