Economics, Econometrics and Finance
5 years ago

Financial market incompleteness in monetary union leads to 1.8% consumption boost.

Annals of Economics and Statistics
On Financial Market Incompleteness, Price Stickiness, and Welfare in a Monetary Union
Stéphane Auray, Aurélien Eyquem

Paper Summary

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The article explores how incomplete financial markets in a monetary union can affect welfare. By studying a model with sticky prices and asymmetric shocks, the researchers found that incomplete financial markets lead to lower volatility in inflation rates, which is good for welfare. This results in an average increase of 1.8% in permanent consumption.