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

Bargaining Frictions, Labor Income Taxation and Economic Performance

A matching model with labor/leisure choice and bargaining frictions is used to explain (i) differences in GDP per hour and GDP per capita, (ii) differences in employment, (iii) differences in the proportion of part{time work across countries. The model predicts that the higher the level of rigidity in wages and hours the lower are GDP per capita, employment, part-time work and hours worked, but the higher is GDP per hour worked. In addition, it predicts that a country with a high level of rigidity in wages and hours and a high level of income taxation has higher GDP per hour and lower GDP per capita than a country with less rigidity and a lower level of taxation. This is due mostly to a lower level of employment. In contrast, a country with low levels of rigidity in hours and in wage setting but with a higher level of income taxation has a lower GDP per capita and a higher GDP per hour than the economy with low rigidity and low taxation. In this configuration,the level of employment is similar in both economies but the share of part-time work is larger.models of search and matching, bargaining frictions, economic performance, labor market institutions, part-time jobs, labor market rigidities

Consumption Growth and the Real Interest Rate following a Monetary Policy Shock : Is the Habit Persistence Assumption Relevant?

In this paper, we study the role of habit formation in accounting for the joint behavior of the real interest rate and consumption growth following a contractionary monetary policy shock, the real interest rate exhibits a persistent increase while consumption growth drops persitently. As the standard permanent income model is known to be unable to replicate this co-movement for intertemporal substitution motives, we introduce habit persistence in consumption behavior. We test the implied Euler equation using a method of moments on conditional moments (IRF) obtained from the VAR Model. Our estimates of the habit persistence parameter are similar to previous results in the literature. Further, we find empirical support in favor of habit formation as a relevant assumption to represent the joint behavior of the real interest rate and the consumption growth following a monetary policy shock. Finally, we show that habit formation allows weakening the intertemporal substitution mechanismhabit persistence, consumption growth, real interest rate, vector autoregressive, monetary policy shock

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

Consommation, effet de substitution intertemporelle et formation des habitudes

Cet article discute du rôle du mécanisme de substitution intertemporelle dans le comportement de consommation des ménages. Après avoir constaté que ce mécanisme est au coeur de plusieurs modèles monétaires mais, qu’étant trop fort, il tend généralement à réduire la capacité de ces modèles à reproduire les faits stylisés monétaires, je dresse un bilan de l’état des connaissances sur le lien entre consommation et effet de substitution intertemporelle. L’intérêt de l’hypothèse de persistance des habitudes dans le comportement de consommation est analysée à l’aide d’un modèle simple de choix intertemporels pour montrer que cette hypothèse permet d’affaiblir le mécanisme de substitution intertemporelle, et par voie de conséquence, d’améliorer les propriétés dynamiques des modèles monétaires usuels.This article discusses the role of the intertemporal substitution mechanism in consumption. After noting that this mechanism is central for several monetary models but, being too strong, it generally tends to reduce the ability of these models to reproduce the stylized monetary facts, it discusses the state of knowledge about the relationship between consumption and the intertemporal substitution effect. The interest of the hypothesis of habit persistence in consumption behaviour is analyzed using a simple model of intertemporal choice to show that this assumption allows weakening the intertemporal substitution mechanism, and consequently, improve the dynamic properties of the common monetary models

On clustering procedures and nonparametric mixture estimation

This paper deals with nonparametric estimation of conditional den-sities in mixture models in the case when additional covariates are available. The proposed approach consists of performing a prelim-inary clustering algorithm on the additional covariates to guess the mixture component of each observation. Conditional densities of the mixture model are then estimated using kernel density estimates ap-plied separately to each cluster. We investigate the expected L 1 -error of the resulting estimates and derive optimal rates of convergence over classical nonparametric density classes provided the clustering method is accurate. Performances of clustering algorithms are measured by the maximal misclassification error. We obtain upper bounds of this quantity for a single linkage hierarchical clustering algorithm. Lastly, applications of the proposed method to mixture models involving elec-tricity distribution data and simulated data are presented

Habit Persistence and Beliefs Based Liquidity Effect

The paper introduces habit persistence in consumption decisions in an infinitely-lived agents monetary model with a cash-in-advance constraint. We show that strong enough habit persistence yields indeterminate equilibria. However, real indeterminacy is not per se sufficient to obtain a liquidity effect. The form of the beliefs matters.