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MIT shocks imply market incompleteness

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  • Mukoyama, Toshihiko

Abstract

The allocation after an unanticipated event (often called an “MIT shock”) is different from the allocation of a corresponding complete-market model that explicitly considers the possibility of the shock, even when the probability of the event approaches zero.

Suggested Citation

  • Mukoyama, Toshihiko, 2021. "MIT shocks imply market incompleteness," Economics Letters, Elsevier, vol. 198(C).
    • Handle: RePEc:eee:ecolet:v:198:y:2021:i:c:s0165176520304262
    DOI: 10.1016/j.econlet.2020.109666
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    1. Boppart, Timo & Krusell, Per & Mitman, Kurt, 2018. "Exploiting MIT shocks in heterogeneous-agent economies: the impulse response as a numerical derivative," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 68-92.
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    Cited by:

    1. Mukoyama, Toshihiko, 2023. "In defense of the Kaldor-Hicks criterion," Economics Letters, Elsevier, vol. 224(C).

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    More about this item

    Keywords

    MIT shock; Incomplete markets;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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