relevant for pass-through: beliefs about the expected duration of the shock and its interaction with price rigidities. We then … employ a hypothetical vignette to study the causal effect of nominal and real rigidities as well as the nature of the shock …

We present a new partial equilibrium theory of price adjustment, based on consumer loss aversion. In line with prospect … theory, the consumers' perceived utility losses from price increases are weighted more heavily than the perceived utility … an otherwise standard dynamic neoclassical model of monopolistic competition. The resulting theory of price adjustment is …