Transaction costs delay response to new monetary policy, impacting real variables.
The article discusses how people choose to hold money instead of bonds to save on transaction costs in an economy. When new information comes in, individuals don't immediately adjust their money holdings. This delayed response to new information leads to a different reaction to changes in monetary policy compared to standard models. Even though goods markets clear quickly, transaction costs cause delays in nominal variables responding to monetary policy changes, which then affects real variables.
