Welfare Reversals in a Monetary Union

Stéphane Auray and Aurélien Eyquem

No 1342, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

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.

Keywords: Monetary Union; Financial Markets Incompleteness; Sticky Prices; Fiscal and Monetary Policy (search for similar items in EconPapers)
JEL-codes: E32 E63 F32 F41 F42 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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ftp://ftp.gate.cnrs.fr/RePEc/2013/1342.pdf (application/pdf)

Related works:
Journal Article: Welfare Reversals in a Monetary Union (2014)
Working Paper: Welfare Reversals in a Monetary Union (2014)
Working Paper: Welfare Reversals in a Monetary Union (2014)
Working Paper: Welfare Reversal in Monetary Union (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1342

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