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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.

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  • 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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    1. Abel, Andrew B & Blanchard, Olivier J, 1983. "An Intertemporal Model of Saving and Investment," Econometrica, Econometric Society, vol. 51(3), pages 675-692, May.
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    4. 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.
    5. Young, Eric R., 2004. "Unemployment insurance and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1683-1710, November.
    6. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 659-684.
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    8. Mukoyama, Toshihiko, 2010. "Welfare effects of unanticipated policy changes with complete asset markets," Economics Letters, Elsevier, vol. 109(2), pages 134-138, November.
    9. Mukoyama, Toshihiko, 2013. "Understanding the welfare effects of unemployment insurance policy in general equilibrium," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 347-368.
    10. Dye, Ronald A, 1985. "Costly Contract Contingencies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 233-250, February.
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    13. Per Krusell & Toshihiko Mukoyama & Ayşegül Şahin, 2010. "Labour-Market Matching with Precautionary Savings and Aggregate Fluctuations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1477-1507.
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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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