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MIT Shocks Imply Market Incompleteness

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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

  • Toshihiko Mukoyama, 2020. "MIT Shocks Imply Market Incompleteness," Working Papers gueconwpa~20-20-04, Georgetown University, Department of Economics.
  • Handle: RePEc:geo:guwopa:gueconwpa~20-20-04
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    References listed on IDEAS

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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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    9. Young, Eric R., 2004. "Unemployment insurance and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1683-1710, November.
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    11. Mukoyama, Toshihiko, 2010. "Welfare effects of unanticipated policy changes with complete asset markets," Economics Letters, Elsevier, vol. 109(2), pages 134-138, November.
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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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