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

Author(s): Adrien Auclert, Bence Bardóczy and Matthew Rognlie

Publication Date: June 2020

Keyword(s): Fiscal multipliers, HANK, MPC and MPE

Programme Area(s): Monetary Economics and Fluctuations

Abstract: We establish an impossibility result for New Keynesian models with a frictionless labor market: these models cannot simultaneously match plausible estimates of marginal propensities to consume (MPCs), marginal propensities to earn (MPEs), and fiscal multipliers. Sticky wages provide a solution to this trilemma.

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Bibliographic Reference

Auclert, A, Bardóczy, B and Rognlie, M. 2020. 'MPCs, MPEs and Multipliers: A Trilemma for New Keynesian Models'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14977