Mpcs, Mpes and Multipliers: A Trilemma for New Keynesian Models

CEPR Discussion Paper No. DP14977

46 Pages Posted: 27 Jul 2020 Last revised: 15 Mar 2021

See all articles by Adrien Auclert

Adrien Auclert

Stanford University - Department of Economics

Bence Bardóczy

Northwestern University

Matthew Rognlie

Northwestern University

Multiple version iconThere are 2 versions of this paper

Date Written: June 2020

Abstract

We show that New Keynesian models with frictionless labor supply face a challenge: given standard parameters, they cannot simultaneously match plausible estimates of marginal propensities to consume (MPCs), marginal propensities to earn (MPEs), and fiscal multipliers. A HANK model with sticky wages provides a solution to this trilemma.

JEL Classification: D52, E52, E62, H31

Suggested Citation

Auclert, Adrien and Bardóczy, Bence and Rognlie, Matthew, Mpcs, Mpes and Multipliers: A Trilemma for New Keynesian Models (June 2020). CEPR Discussion Paper No. DP14977, Available at SSRN: https://ssrn.com/abstract=3650090

Adrien Auclert (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Bence Bardóczy

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Matthew Rognlie

Northwestern University

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