Discussion paper

DP14977 MPCs, MPEs and Multipliers: A Trilemma for New Keynesian Models

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.

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Citation

Auclert, A and M Rognlie (2020), ‘DP14977 MPCs, MPEs and Multipliers: A Trilemma for New Keynesian Models‘, CEPR Discussion Paper No. 14977. CEPR Press, Paris & London. https://cepr.org/publications/dp14977

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VoxEU Column

The multiplier of the United States’ largest scholarship programme

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