Real rigidities and small frictions create substantial non-neutralities in economy.
Real rigidities alone don't affect prices much, but when combined with small obstacles to adjusting prices, they can lead to significant rigidity in prices. This study explores how real and nominal rigidities interact, showing that nominal frictions can amplify the effects of real rigidities on prices. The presence of obstacles like costs of changing prices or imperfect information can make prices less responsive to changes in the economy.