On Financial Markets Incompleteness, Price Stickiness, and Welfare in a Monetary Union

Stéphane Auray and Aurélien Eyquem

Cahiers de recherche from CIRPEE

Abstract: In this paper, we measure the welfare costs/gains associated with financial market incompleteness in a monetary union. To do this, we build on a two-country model of a monetary union with sticky prices subject to asymmetric productivity shocks. For most plausible values of price stickiness, we show that asymmetric shocks under incomplete financial markets give rise to a lower volatility of national inflation rates, which proves welfare improving with respect to the situation of complete financial markets. The corresponding welfare gains are equivalent to an average increase of 1.8% of permanent consumption.

Keywords: Monetary union; Asymmetric shocks; Price stickiness; Financial market incompleteness; welfare (search for similar items in EconPapers)
JEL-codes: E51 E58 F36 F41 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cirpee.org/fileadmin/documents/Cahiers_2007/CIRPEE07-48.pdf (application/pdf)

Related works:
Journal Article: On Financial Market Incompleteness, Price Stickiness, and Welfare in a Monetary Union (2013)
Working Paper: On Financial Markets Incompleteness, Price Stickiness and Welfare in a Monetary Union (2013)
Working Paper: On Financial Markets Incompleteness, Price Stickiness, and Welfare in a Monetary Union (2009)
Working Paper: On financial markets incompleteness, price stickiness and welfare in a monetary union (2008)
Working Paper: On financial markets inclompleteness, price stickyness and welfare in a monetary union ? (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0748

Access Statistics for this paper

More papers in Cahiers de recherche from CIRPEE Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().