This paper studies the consequences of costly price adjustments for the variability of real prices accompanying inflation. For constant- elasticity demand and cost of production, it is shown that a higher d emand, a lower cost of production, or a lower cost of price adjustmen t leads to less intertemporal variability of real prices. If the marg inal cost of production does not increase "too" fast, then the aver age real price is less than the real price that would prevail in the absence of inflation; additionally, a higher demand, a lower cost of production, or a lower cost of price adjustment leads to a higher lev el of real prices. Copyright 1987 by Oxford University Press.
