Welfare Reversals in a Monetary Union

Stéphane Auray and Aurélien Eyquem

Working Papers from HAL

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)
Date: 2014-01-08
New Economics Papers: this item is included in nep-cba, nep-mac and nep-opm
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00925589v1
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Citations: View citations in EconPapers (14)

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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 (2013)
Working Paper: Welfare Reversal in Monetary Union (2012)
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