We introduce menu costs in the search-theoretic model of imperfect competition of Burdett and Judd (1983). When menu costs are not too large, the equilibrium is such that sellers follow a (Q,S,s) pricing rule. According to the rule, a seller lets inflation erode the real value of its nominal price until it reaches some point s. Then, the seller pays the menu cost and resets the real value of it...
