This paper proposes a theory of price rigidity consistent with survey evidence that firms stabilize prices out of … fairness to their consumers. The theory relies on two psychological assumptions. First, customers care about the fairness of … rigid. Embedded in a simple macroeconomic model, our pricing theory produces nonneutral monetary policy, a short …

. The imperfect information is endogenized using a variant of the theory of quot;rational inattentionquot; proposed by Sims …

policy analysis, researchers should use a menu cost model like ours or at least a third, theory-based shortcut: set the Calvo …