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

Working Papers

Published By


July 2020

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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. A HANK model with sticky wages provides a solution to this trilemma.

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