Distributional dynamics under smoothly state-dependent pricing

► Generalized state-dependent pricing model nests Calvo and menu costs. ► Low degree of state dependence required to match distribution of price adjustments. ► Low state dependence implies nontrivial real effects of monetary shocks. ► Decompose inflation into intensive, extensive, and selection margins. ► Explain why sector-specific shocks may seem to have immediate, permanent effects.