A mixed industrial structure magnifies the importance of menu costs

New Keynesian literature assumes symmetric industrial structure when analys ing explanations of money non-neutrality. This paper analyses the impact of modifying this assumption by allowing for a mixed industrial structure; so me industries are characterized by monopolistic competition, others by perf ect competition. The mixed industrial structure implies misallocation of la bour between the different industries which may contribute to explanations of non-neutrality of money. Following a 5% money increase, the menu costs n eeded for non-neutrality may be 40 times smaller and ratio of welfare gain over private loss more than 100 times larger than in the corresponding mode l with a symmetric structure. (C) 1999 Elsevier Science B.V. All rights res erved. JEL classification. D40; E30; L16.