On Financial Markets Incompleteness, Price Stickiness, and Welfare in a Monetary Union

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 show that asymmetric shocks under incomplete financial markets give rise to a lower volatility of national inflation rates, which proves welfare improving with respect to the situation of complete financial markets. The corresponding welfare gains are equivalent to an average increase of 1.8% of permanent consumption.Monetary union, Asymmetric shocks, Price stickiness, Financial market incompleteness, welfare

On financial markets inclompleteness, price stickyness and welfare in a monetary union ?

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 show that asymmetric shocks under incomplete financial markets give rise to a lower volatility of national infation rates, which proves welfare improving with respect to the situation of complete financial markets. The corresponding welfare gains are equivalent to an average increase of 1.8% of permanent consumption.monetary union, asymmetric shocks, price stickiness, financial market incompleteness, welfare

What do business models do? Narratives, calculation and market exploration

Building on a case study of an entrepreneurial venture, we investigate the role played by business models in the innovation process. Rather than debating their accuracy and efficiency, we adopt a pragmatic approach to business models -- we examine them as market devices, focusing on their materiality, use and dynamics. Taking into account the variety of its forms, which range from corporate presentations to business plans, we show that the business model is a narrative and calculative device that allows entrepreneurs to explore a market and plays a performative role by contributing to the construction of the techno-economic network of an innovation.WP abstract: Analyzes the uses and functions of business models through original, qualitative case studies focused on research-based spin-offs.Business models; spin-offs; innovation; commercialization; calculation; exploration; R&D; entrepreneurship

A Tale of Tax Policies in Open Economies

Recent financial crises in Europe as well as the periodic battles in the U.S. over the debt ceiling point to the importance of fiscal discipline among developed countries. This paper develops an open economy model, calibrated to the U.S. and a subset of the EMU, to evaluate the impact of various permanent tax changes. The first set of experiments considers a targeted one percentage point reduction in the government deficit-to-GDP ratio through raising one of: the consumption tax, the labor income tax, or the capital income tax. In terms of welfare, the consumption tax is found to be the least costly of the tax increases. A second set of experiments looks at deficit-neutral tax changes: partially replacing the capital income tax with either a higher labor income tax or higher consumption tax; and partially replacing the labor income tax with an increased consumption tax. Reducing reliance on capital income taxation is welfare-enhancing, although it leads to short term losses. Reducing labor income taxation improves international competitiveness and is welfare-improving.Fiscal policies, open economies, public deficits, tax reforms

The Welfare Gains of Trade Integration in the European Monetary Union

This paper evaluates the welfare gains arising from a deeper trade integration in the European Monetary Union. To do this, the European Monetary Union is represented in a realistic way by an intertemporal general equilibrium model with incomplete financial markets, sticky prices and home bias both in private consumption and production. The model is estimated and globally not rejected by the data. Two main results emerge : (i) an increase in vertical (intermediate goods) trade implies welfare gains while (ii) an increase in horizontal trade implies welfare losses.trade integration, inflation differentials, welfare analysis, optimal currency areas

Endogenous Entry, International Business Cycles, and Welfare

Working paper GATE 2011-14This paper examines if taking into account changes in the number of producers, or equivalently changes in the product variety space over the business cycle, helps to understand and replicate international business cycle facts. To this end, we develop a two-country model in which the economy is driven by real and monetary policy shocks. If it is characterized by an endogenous number of firms and varieties, sticky prices and financial markets incompleteness. We show that these features are crucial to reproduce international business cycle statistics. We also evaluate the welfare implications of various monetary policies and highlight the importance for monetary policymakers to respond moderately to output fluctuations

Welfare Reversals in a Monetary Union

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

What do business models do? Narratives, calculation and market exploration

http://www.csi.ensmp.fr/Items/WorkingPapers/Download/DLWP.php?wp=WP_CSI_012.pdfCSI WORKING PAPERS SERIES 012International audienceBuilding on a case study of an entrepreneurial venture, we investigate the role played by business models in the innovation process. Rather than debating their accuracy and efficiency, we adopt a pragmatic approach to business models -- we examine them as market devices, focusing on their materiality, use and dynamics. Taking into account the variety of its forms, which range from corporate presentations to business plans, we show that the business model is a narrative and calculative device that allows entrepreneurs to explore a market and plays a performative role by contributing to the construction of the techno-economic network of an innovation.WP abstract: Analyzes the uses and functions of business models through original, qualitative case studies focused on research-based spin-offs.Analyse des usages et fonctions des "business models" à partir d'études de cas originaux dans le domaine des entreprises innovantes issues de la recherche

Government Spending, Monetary Policy, and the Real Exchange Rate

A robust prediction across a wide range of open-economy macroeconomic models is that an unanticipated increase in public spending in a given country appreciates it currency in real terms. This result, however, contradicts the findings of a number of recent empirical studies, which instead document a signifi...cant and persistent depreciation of the real exchange rate following an expansionary government spending shock. In this paper, we rationalize the findings of the empirical literature by proposing a small-open-economy model that features three key ingredients : incomplete and imperfect international financial markets, sticky prices, and a not-too-aggressive monetary policy. The model predicts that in response to an unexpected increase in public expenditures, the risk-adjusted long-term real interest rate falls, causing the real exchange rate to depreciate. We establish this result both analytically, within a special version of the model, and numerically for the more general case.Real exchange rate; public spending shocks; small open economy; sticky prices; monetary policy

Endogenous Entry, International Business Cycles, and Welfare

This paper examines if taking into account changes in the number of producers, or equivalently changes in the product variety space over the business cycle, helps to understand and replicate international business cycle facts. To this end, we develop a two-country model in which the economy is driven by real and monetary policy shocks. If it is characterized by an endogenous number of firms and varieties, sticky prices and financial markets incompleteness. We show that these features are crucial to reproduce international business cycle statistics. We also evaluate the welfare implications of various monetary policies and highlight the importance for monetary policymakers to respond moderately to output fluctuations.International business cycles; Endogenous entry; Financial markets incompleteness; Sticky prices; Monetary policy; Welfare