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IFS-STICERD Public Economics Seminar

Price Theory for Incomplete Markets

Alan Olivi (Massachusetts Institute of Technology), joint with with Emmanuel Farhi and Ivan Werning

Wednesday 16 June 2021 16:30 - 17:30

Many of our seminars and public events this year will continue as in person or as hybrid (online and in person) events. Please check our website listings and Twitter feed @STICERD_LSE for updates.

Unless otherwise specified, in-person seminars are open to the public.

Those unable to join the seminars in-person are welcome to participate via zoom if the event is hybrid.

About this event

In this paper, we derive formulas expressing the elasticity of individual consumption to changes in current and future interest rates and income in incomplete market models. We generalize the existing price theory formulas in complete market models with a single inter-temporal budget constraint. Our characterization relies on two state price densities capturing the welfare and precautionary effects of income and price changes. It provides a natural decomposition of consumption responses with structural interpretation. We quantitatively show that these new statistics matter significantly to understand aggregate demand in incomplete markets, beyond the impact of heterogeneous marginal propensities to consume.

This seminar series is jointly organized by the IFS and STICERD.

IFS-STICERD Public Economics seminars are held on Wednesdays in term time at 12.30-13.45 IN PERSON at the IFS.

Seminar organisers: Stuart Adam (IFS), Monica Costa Dias (IFS), Xavier Jaravel (LSE), Camille Landais (LSE), Attila Lindner (UCL), Joana Naritomi (LSE), and Johannes Spinnewijn (LSE).

For further information please contact Peter Levell: .

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