Real Rigidities and Nominal Price Changes

30 Pages Posted: 3 Jun 2016

See all articles by Peter J. Klenow

Peter J. Klenow

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Jonathan L. Willis

Federal Reserve Bank of Kansas City

Multiple version iconThere are 2 versions of this paper

Date Written: July 2016


Real rigidities can help to generate persistent effects of monetary policy shocks. We analyse an industry equilibrium model with two types of real rigidities: a ‘micro’ real rigidity from a kinked demand curve, and a ‘macro’ real rigidity due to sticky intermediate prices. We estimate key model parameters using micro data from the US CPI, which features big movements in relative prices within and across sectors. The micro real rigidity necessitates large idiosyncratic shocks to productivity. The macro real rigidity does not entail such large idiosyncratic shocks, and is consistent with the volatility of sectoral TFP growth.

Suggested Citation

Klenow, Peter J. and Willis, Jonathan, Real Rigidities and Nominal Price Changes (July 2016). Economica, Vol. 83, Issue 331, pp. 443-472, 2016, Available at SSRN: or

Peter J. Klenow (Contact Author)

Stanford University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Jonathan Willis

Federal Reserve Bank of Kansas City ( email )

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