I propose a macroeconomic model where firms hold capacity to compete for buyers who are not fully attentive to price differences and thus search for capacity in a somewhat random way. Because of this competition among firms, capacity is underutilized for production in the long term. Demand naturally drives business cycles as a result of capacity underutilization. A shock to consumption demand generates a large movement in investment, an acyclical real wage, and a pro-cyclical Solow residual. Estimation results indicate that the single consumption demand shock can already explain 70% of the variance in consumption, 78% of the variance in investment, 59% of the variance in hours, and 71% of the variance in the capacity utilization rate.
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