utility calculations. There is a stabilization problem because there are one-period nominal contracts for wages, or prices, or …

A model that contains no costs to changing prices but in which prices do not respond to nominal shocks is presented. In … equilibrium in which sticky prices are supported without menu costs is then constructed. In equilibrium firms choose to keep … prices fixed in response to nominal shocks because doing so provides a service to their customers, increasing profits by …

-optimal equilibrium that would occur under completely flexible wages and prices; that is, the model exhibits a tradeoff between … stabilizing the output gap, price inflation, and wage inflation. The Pareto optimum is attainable only if either wages or prices …

aggregate price level and to demonstrate econometrically its equivalence to the exogeneity of relative prices with respect to … role for supply-side disturbances in explaining comovements in aggregate and relative prices. …