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...

An annual sequence of wages in England starting in 1245 is used. It is shown that a standard AK-type growth model with capital externality and stochastic productivity shocks is unable to explain important features of the data. Random returns to scale are then considered. Moderate episodes of...

The paper builds a two-country model of a monetary union with home bias and price stickiness. Incompleteness of financial asset markets is allowed. In this environment, we derive the solution for optimal behavior by the monetary policymaker and show that welfare can be higher under incomplete...

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...

In this paper, we propose a theoretical framework to investigate the impact of conflicts and wars on key macroeconomic aggregates and welfare. Using a panel data with 9 countries from 1870 onwards, we first show that the consumption-to-output ratio is minimal during WWII for participants. While...

We show that the welfare costs of business cycles in a monetary union can be higher under incomplete financial markets than under complete markets. A monetary union with home bias, sticky prices and country-specific shocks is a second-best environment in which the structure of financial markets...

This paper proposes a conceptual framework to investigate the impact of military conflicts on business cycles, as well as defense policies through enrolment mechanisms. Our framework is a variation of a Real Business Cycle model first proposed by Hercowitz and Sampson (1991) that admits explicit...

In this paper, we measure the welfare costs/gains associated with financial market incompleteness in a monetary union. To do this, we build on a two-country model of a monetary union with sticky prices subject to asymmetric productivity shocks. For most plausible values of price stickiness, we...

The paper builds a two-country model of a monetary union with home bias and price stickiness. Incompleteness of financial asset markets is allowed. In this environment, we derive the solution for optimal behavior by the monetary policymaker and show that welfare can be higher under incomplete...

Dans cet article, nous montrons que l'incomplétude des marchés dans une union monétaire caractérisée par des chocs asymétriques et des rigidités nominales génère des gains de bien-être. L'existence de marchés incomplets relâche la pression sur les termes de l'échange, ce qui réduit...