This paper shows that financial market incompleteness leads to welfare gains in a monetary union where nominal rigidities and asymmetric shocks do exist. Incomplete financial markets reduce the volatility of the national inflation rates. Welfare gains associated with this decrease are higher...

This paper assesses the joint behavior of the nominal interest rate and the inflation in a sticky prices model with exogenous money growth rule. Using a limited information estimation method, we identify and estimate the relation between the nominal interest rate and the expected inflation...