The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Real Rigidities

  • David Romer
Reference work entry


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.


Adjustment 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 

JEL Classifications

D4 D10 E12 E32 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • David Romer
    • 1
  1. 1.