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MPCs, MPEs, and Multipliers: A Trilemma for New Keynesian Models

Author

Listed:
  • Adrien Auclert

    (Stanford University, CEPR, and NBER)

  • Bence Bardóczy

    (Northwestern University)

  • Matthew Rognlie

    (Northwestern University)

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.

Suggested Citation

  • Adrien Auclert & Bence Bardóczy & Matthew Rognlie, 2023. "MPCs, MPEs, and Multipliers: A Trilemma for New Keynesian Models," The Review of Economics and Statistics, MIT Press, vol. 105(3), pages 700-712, May.
    • Handle: RePEc:tpr:restat:v:105:y:2023:i:3:p:700-712
    DOI: 10.1162/rest_a_01072
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    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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