Author(s):	Adrien Auclert, Bence Bardóczy, Matthew Rognlie
Publication Date:	June 2020
Date Revised:	July 2020
Keyword(s):	Fiscal multipliers, HANK, MPC, MPE
JEL(s):	D52, E52, E62, H31
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14977

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.