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

Author

Listed:
  • Adrien Auclert
  • Bence Bardóczy
  • Matthew Rognlie
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, 2020. "MPCs, MPEs and Multipliers: A Trilemma for New Keynesian Models," NBER Working Papers 27486, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27486
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Tobias Broer & Per Krusell & Erik Öberg, 2021. "Fiscal Multipliers: A Heterogenous-Agent Perspective," NBER Working Papers 28366, National Bureau of Economic Research, Inc.
    2. Jesús Fernández-Villaverde & Joël Marbet & Galo Nuño & Omar Rachedi, 2023. "Inequality and the Zero Lower Bound," NBER Working Papers 31282, National Bureau of Economic Research, Inc.
    3. Kopiec, Paweł, 2024. "Monetary-Fiscal Forward Guidance," MPRA Paper 120563, University Library of Munich, Germany.
    4. Anna Sokolova, 2023. "Marginal Propensity to Consume and Unemployment: a Meta-analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 813-846, December.
    5. Hannah Magdalena Seidl & Fabian Seyrich, 2021. "Unconventional Fiscal Policy in HANK," Discussion Papers of DIW Berlin 1953, DIW Berlin, German Institute for Economic Research.
    6. Mikhail Golosov & Michael Graber & Magne Mogstad & David Novgorodsky, 2024. "How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 139(2), pages 1321-1395.
    7. Guerreiro, Joao & Hazell, Jonathon & Lian, Chen & Patterson, Christina, 2024. "Why Do Workers Dislike Inflation? Wage Erosion and Conflict Costs," IZA Discussion Papers 17339, Institute of Labor Economics (IZA).
    8. Kopiec, Paweł, 2024. "The aggregate and distributional effects of fiscal stimuli," Economic Modelling, Elsevier, vol. 134(C).
    9. Matthew Knowles & Mario Lupoli, 2023. "The Nash Wage Elasticity and its Business Cycle Implications," ECONtribute Discussion Papers Series 240, University of Bonn and University of Cologne, Germany.
    10. Babette Jansen & Roland Winkler, 2024. "Household Heterogeneity, Nonseparable Preferences, and the Taylor Principle," Jena Economics Research Papers 2024-006, Friedrich-Schiller-University Jena.
    11. Airaudo, Marco & Hajdini, Ina, 2023. "Wealth effects, price markups, and the neo-Fisherian hypothesis," European Economic Review, Elsevier, vol. 157(C).
    12. Jae Won Lee & Seunghyeon Lee, 2025. "Monetary Non-Neutrality in a Multisector Economy: The Role of Risk-Sharing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 55, January.
    13. Bence Bardóczy & Jae W. Sim & Andreas Tischbirek, 2024. "The Macroeconomic Effects of Excess Savings," Finance and Economics Discussion Series 2024-062, Board of Governors of the Federal Reserve System (U.S.).
    14. Bence Bardóczy & Mateo Velásquez-Giraldo, 2024. "HANK Comes of Age," Finance and Economics Discussion Series 2024-052, Board of Governors of the Federal Reserve System (U.S.).
    15. Jochen Mankart & Romanos Priftis & Rigas Oikonomou, 2022. "The long and short of financing government spending," Working Paper Research 418, National Bank of Belgium.
    16. Kondylis,Florence & Loeser,John Ashton, 2021. "Intervention Size and Persistence," Policy Research Working Paper Series 9769, The World Bank.
    17. Felipe Alves & Giovanni L. Violante, 2024. "From Micro to Macro Hysteresis: Long-Run Effects of Monetary Policy," Staff Working Papers 24-39, Bank of Canada.
    18. Donggyu Lee, 2024. "Quantitative Easing and Inequality," Staff Reports 1108, Federal Reserve Bank of New York.

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    More about this item

    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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