Real Rigidities and the Non-Neutrality of Money

Laurence Ball () and David Romer ()

No 2476, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks. And, by themselves, small frictions in nominal adjustment, such as costs of changing prices, create only small non-neutralities. But this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions. The paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for several specific sources of real rigidity: costs of adjusting real prices, asymmetric demand arising from imperfect information, and efficiency wages.

Date: Written
Note: EFG
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Journal Article: Real Rigidities and the Non-neutrality of Money (1990)
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