Working Paper: CEPR ID: DP14977
Authors: Adrien Auclert; Bence Bardoczy; 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.
Keywords: MPC; MPE; Fiscal Multipliers; HANK
JEL Codes: D52; E52; E62; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MPCs (E42) | fiscal multipliers (E62) |
| MPEs (D04) | fiscal multipliers (E62) |
| sticky wages (J31) | MPEs (D04) |
| sticky wages (J31) | MPCs (E42) |
| MPCs + MPEs (E19) | fiscal multipliers (E62) |
| MPCs + sticky wages (E12) | fiscal multipliers (E62) |