On financial markets inclompleteness, price stickyness and welfare in a monetary union ?

Stéphane Auray and Aurélien Eyquem
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Aurélien Eyquem: CREM – CNRS - University of Rennes 1

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

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 infation 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 F4 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba and nep-mac
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Related works:
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 Incompleteness, Price Stickiness, and Welfare in a Monetary Union (2007)
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