Real Rigidities and the Non-Neutrality of Money

50 Pages Posted: 28 Jun 2004

See all articles by Laurence Ball

Laurence Ball

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

David H. Romer

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 1987

Abstract

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 non-neutralities. But this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions. The paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for several specific sources of real rigidity: costs of adjusting real prices, asymmetric demand arising from imperfect information, and efficiency wages.

Suggested Citation

Ball, Laurence M. and Romer, David H., Real Rigidities and the Non-Neutrality of Money (December 1987). NBER Working Paper No. w2476. Available at SSRN: https://ssrn.com/abstract=241428

Laurence M. Ball (Contact Author)

Johns Hopkins University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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International Monetary Fund (IMF) ( email )

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David H. Romer

University of California, Berkeley - Department of Economics ( email )

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United States
510-642-0822 (Phone)

National Bureau of Economic Research (NBER)

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United States

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