In the data, a large fraction of price changes are temporary. We provide a simple menu cost model which explicitly includes a motive for temporary price changes. We show that this simple model can account for the main regularities concerning temporary and permanent price changes. We use the...

In the 1970s macroeconomists often disagreed bitterly. Macroeconomists have now largely converged on method, model design, and macroeconomic policy advice. The disagreements that remain all stem from the practical implementation of the methodology. Some macroeconomists think that New Keynesian...