Working Paper: NBER ID: w27486
Authors: Adrien Auclert; Bence Bardczy; 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: New Keynesian Models; Marginal Propensity to Consume; Fiscal Multipliers
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 |
|---|---|
| high average MPCs (E19) | inability to match low average MPEs and moderate fiscal multipliers (E62) |
| low average MPEs (C51) | inability to match high average MPCs and moderate fiscal multipliers (E62) |
| moderate fiscal multipliers (E62) | inability to match high average MPCs and low average MPEs (D29) |
| introducing sticky wages in a Hank model (C54) | solution to the trilemma (E19) |
| raising CI (C43) | excessively high fiscal multipliers (E62) |
| CI increases (C43) | fiscal multiplier increases (E62) |
| government spending (H59) | output (C67) |