Real rigidities are forces that reduce the responsiveness of firms’ profit-maximizing prices to variations in aggregate output resulting from variations in aggregate demand. Real rigidities make firms less inclined to take actions that dampen movements in aggregate output, and so increase the responsiveness of output to disturbances. They appear essential to any successful explanation of short-run macroeconomic fluctuations. As a result, various forms of real rigidity pervade modern models of business cycles.
KeywordsAdjustment costs Aggregate demand Business cycles Capital-market imperfections Cyclical markups Efficiency wages Elasticity of substitution Imperfect competition Input–output analysis Labour mobility Labour supply Menu costs Nominal rigidities Real business cycles Real rigidities Staggered price setting Sticky prices Strategic complementarity
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