This paper presents a model with moderate nominal rigidities that explains the observed inertia in inflation and persistence in output. The model incorporates staggered wage and price contracts, and variable capital utilization. Key features include Calvo-style nominal price and wage contracts, habit persistence in consumption preferences, adjustment costs in investment, and variable capital utilization. The model accounts for the dynamic response of inflation and output to a monetary policy shock, as well as the delayed, hump-shaped response in consumption, investment, profits, productivity, and the weak response of the real wage. The critical nominal friction is wage contracts, not price contracts. The model with only nominal wage rigidities performs well, while models with only price rigidities do not. The model's internal propagation mechanisms are strong, leading to persistent responses in aggregate variables. The paper uses a limited information econometric strategy to estimate and evaluate the model, focusing on the dynamic effects of a monetary policy shock. The model's parameters are estimated using a vector autoregression (VAR) approach, and the results show that the model accurately captures the observed responses of the US economy to a monetary policy shock. The model incorporates variable capital utilization, which helps dampen the rise in marginal costs and prices, leading to inertial inflation and persistent output movements. The model also shows that the response of the real wage is weak, consistent with the observed data. The paper concludes that the model provides a good explanation of the observed economic behavior and highlights the importance of nominal rigidities in explaining the dynamic effects of monetary policy.This paper presents a model with moderate nominal rigidities that explains the observed inertia in inflation and persistence in output. The model incorporates staggered wage and price contracts, and variable capital utilization. Key features include Calvo-style nominal price and wage contracts, habit persistence in consumption preferences, adjustment costs in investment, and variable capital utilization. The model accounts for the dynamic response of inflation and output to a monetary policy shock, as well as the delayed, hump-shaped response in consumption, investment, profits, productivity, and the weak response of the real wage. The critical nominal friction is wage contracts, not price contracts. The model with only nominal wage rigidities performs well, while models with only price rigidities do not. The model's internal propagation mechanisms are strong, leading to persistent responses in aggregate variables. The paper uses a limited information econometric strategy to estimate and evaluate the model, focusing on the dynamic effects of a monetary policy shock. The model's parameters are estimated using a vector autoregression (VAR) approach, and the results show that the model accurately captures the observed responses of the US economy to a monetary policy shock. The model incorporates variable capital utilization, which helps dampen the rise in marginal costs and prices, leading to inertial inflation and persistent output movements. The model also shows that the response of the real wage is weak, consistent with the observed data. The paper concludes that the model provides a good explanation of the observed economic behavior and highlights the importance of nominal rigidities in explaining the dynamic effects of monetary policy.