Rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks. And, by themselves, small frictions in nominal adjustment, such as costs of changing prices, create only small nonneutralities. But, this paper shows that substantial nominal...

This paper links the "coordination failure" and "menu cost" approaches to the microeconomic foundations of Keynesian macroeconomics. If a firm's desired price is increasing in others' prices, then the gain from price adjustment after a nominal shock is greater if others adjust. This "strategic...

These two volumes bring together a set of important essays that represent a "new Keynesian" perspective in economics today. This recent work shows how the Keynesian approach to economic fluctuations can be supported by rigorous microeconomic models of economic behavior. The essays are grouped in...

The new Keynesians made more rapid progress in understanding the microeconomics of unemployment than in understanding the microeconomics of nominal price rigidity. But the past five years have seen important breakthroughs in this second area. This paper will describe these breakthroughs, discuss...

Why do some attempts at disinflation lead to substantial reductions in inflation while others do not? We investigate this question in the context of the Federal Reserve's attempts at disinflation since World War II. Our central finding is that a fundamental determinant of success in reducing...