Welfare Reversals in a Monetary Union

Stéphane Auray and Aurélien Eyquem

American Economic Journal: Macroeconomics, 2014, vol. 6, issue 4, 246-90

Abstract: We show that welfare can be lower under complete financial markets than under autarky in a monetary union with home bias, sticky prices, and asymmetric shocks. Such a monetary union is a second- best environment in which the structure of financial markets affects risk-sharing but also shapes the dynamics of inflation rates and the welfare costs from nominal rigidities. Welfare reversals arise for a variety of empirically plausible degrees of price stickiness when the Marshall-Lerner condition is met. These results carry over a model with active fiscal policies, and hold within a medium-scale model, although to a weaker extent.

JEL-codes: E31 E52 E62 F33 F41 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/mac.6.4.246
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Welfare Reversals in a Monetary Union (2014)
Working Paper: Welfare Reversals in a Monetary Union (2014)
Working Paper: Welfare Reversals in a Monetary Union (2013)
Working Paper: Welfare Reversal in Monetary Union (2012)
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