“…We also assume that markets for tradable goods are segmented, so that firms can set a different price for each of the three markets. In line with other, dynamic general equilibrium models of the EA (see, among others, Christoffel, Coenen, & Warne, ; Gomes, Jacquinot, & Pisani, ), we include adjustment costs on real and nominal variables, ensuring that consumption, production, and prices react gradually to a shock. On the real side, habits and quadratic costs prolong the adjustment of consumption and investment, respectively.…”