The author proposes that sluggish price adjustment is necessary for monetary policy to have real effects. His purpose is to provide microeconomic foundations for price setting and the gradual adjustment of prices to new information. He argues that differences in information and costs associated with acquiring information explain three facts about price setting behavior: 1) that many prices are set; 2) that price setters choose to set nominal rather than real prices; and 3) that many prices change slowly over time. While not rejecting a role for menu prices, imperfect competition, relative and absolute price confusion, and aggregation in explaining sticky-price behavior, the author argues that these alternative explanations are not consistent with one or more features of price data. Instead, he argues that the cost of acquiring information and the inability of individuals to fully distinguish permanent from transitory shocks provide better micro-foundations for the sluggish adjustment of nominal prices observed in the data. The author also argues that the now widely adopted approach to providing micro-foundations to macroeconomics, which features representative agents and complete ArrowDebreu markets, have not, and will not, prove useful. He contends that this framework provides no role for monetary disturbances. Hence, he concludes that “it is not the appropriate micro-foundation for macroeconomics. No amount of squeezing, cutting, and pasting will make it so.”