It is by now well known that the presence of small lump sum costs of adjusting prices can lead to nominal price rigidity. However, the argument of adjustment costs could equally well be applied to quantities, thereby leading to rigid quantities. This paper examines the importance of adjustment...

This paper investigates whether systematic monetary policy can affect output in a dynamic menu cost model which results in (S,s) price rules. It will be shown that monetary policy potentially can affect output, not only in the short run but also the long run average output. That is, even though...