In economics, nominal rigidity, also known as price-stickiness or wage-stickiness, is a situation in which a nominal price is resistant to change. Complete nominal rigidity occurs when a price is fixed in nominal terms for a relevant period of time. For example, the price of a particular good might be fixed at $10 per unit for a year. Partial nominal rigidity occurs when a price may vary in nominal terms, but not as much as it would if perfectly flexible. For example, in a regulated market there might be limits to how much a price can change in a given year.
If one looks at the whole economy, some prices might be very flexible and others rigid. This will lead to the aggregate price level (which we can think of as an average of the individual prices) becoming "sluggish" or "sticky" in the sense that it does not respond to macroeconomic shocks as much as it would if all prices were flexible. The same idea can apply to nominal wages. The presence of nominal rigidity is an important part of macroeconomic theory since it can explain why markets might not reach equilibrium in the short run or even possibly the long run. In his The General Theory of Employment, Interest and Money, John Maynard Keynes argued that nominal wages display downward rigidity, in the sense that workers are reluctant to accept cuts in nominal wages. This can lead to involuntary unemployment as it takes time for wages to adjust to equilibrium, a situation he thought applied to the Great Depression.
nominalrigidity, also known as price-stickiness or wage-stickiness, is a situation in which a nominal price is resistant to change. Complete nominal...
which arises from over-dependence on prior experiences Real rigidity, and nominalrigidity, the resistance of prices and wages to market changes in macroeconomics...
original price level. When the nominal price level remains constant despite market change is said that there is nominalrigidity or price stickiness in the...
showed in 1990 that real rigidities could interact with nominalrigidities to create significant disequilibrium. Real rigidities occur whenever a firm is...
the future. Positive effects include reducing unemployment due to nominal wage rigidity, allowing the central bank greater freedom in carrying out monetary...
real business cycle theory and new Keynesian economics contributed nominalrigidities (slow moving and periodic, rather than continuous, price changes also...
authorities to defend the gold parity of the pound sterling and the rigidity of nominal wages, he gradually adhered to protectionist measures. On 5 November...
(1990) showed that real rigidities could interact with nominalrigidities to create significant disequilibrium. Real rigidities occur whenever a firm is...
economists had reached a rough consensus. The market imperfections and nominalrigidities of new Keynesian theory was combined with rational expectations and...
to a nominal APR or an effective APR (EAPR). The difference between the two is that the EAPR accounts for fees and compounding, while the nominal APR does...
bound. Central banks typically use a nominal anchor to pin down expectations of private agents about the nominal price level or its path or about what...
(1937) and A. Hansen (1949), the clarification of the role of the rigidity of nominal wages in the Keynesian model in the work of F. Modigliani (1944)...
is useful as a policy target only if the relationship between money and nominal GDP, and therefore inflation, is stable and predictable. This implies that...
upward sloping: The short-run AS curve is drawn given some nominal variables such as the nominal wage rate, which is assumed fixed in the short run. Thus...
discretionary changes in aggregate public spending and the short-term nominal interest rate. "Freshwater economists" often reject the effectiveness of...
conventionally measure such growth as the percent rate of increase in the real and nominal gross domestic product (GDP). Growth is usually calculated in real terms...
in which conventional monetary policies have become impotent, because nominal interest rates are at or near zero: injecting monetary base into the economy...
factors only. Nominal factors like changes in the money supply only affect nominal variables like inflation. The neoclassical idea that nominal factors cannot...
the challenge becomes finding what source, if one even exists, of nominalrigidity that could be so persistent to explain the long-term prolonged nature...
Mundell–Fleming model portrays the short-run relationship between an economy's nominal exchange rate, interest rate, and output (in contrast to the closed-economy...
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