A General Equilibrium Analysis of Inflation and Microfinance in Developing Countries
This paper analyses the welfare effects of microfinance and inflation in developing countries. Therefore, we introduce a moral hazard problem into a monetary search model with money and credit. We show how access to basic financial services affects households' decisions to borrow, to save and to hold money balances. The group lending mechanism of the microfinance institution induces peer monitoring, which in turn enables entrepreneurship. Our main result is that there exists an inflation threshold beyond which entrepreneurship collapses. We show that inflation affects the impact of microfinance on social welfare in a nonlinear way. The positive effect of microfinance is largest for moderate rates of inflation and drops substantially for inflation rates above the threshold. �
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://wwz.unibas.ch
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ben Craig & Guillaume Rocheteau, 2006.
"Inflation and welfare: a search approach,"
Policy Discussion Papers,
Federal Reserve Bank of Cleveland, issue Jan.
- Abhijit V. Banerjee & Esther Duflo, 2010.
"Giving Credit Where It Is Due,"
Journal of Economic Perspectives,
American Economic Association, vol. 24(3), pages 61-80, Summer.
- Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
- Ricardo Lagos & Randall Wright, 2002.
"A unified framework for monetary theory and policy analysis,"
0211, Federal Reserve Bank of Cleveland.
- Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
- Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
- Robert M. Townsend & Joseph P. Kaboski, 2009.
"A Structural Evaluation of a Large-Scale Quasi-Experimental Microfinance Initiative,"
2009 Meeting Papers
717, Society for Economic Dynamics.
- Joseph P. Kaboski & Robert M. Townsend, 2011. "A Structural Evaluation of a Large‐Scale Quasi‐Experimental Microfinance Initiative," Econometrica, Econometric Society, vol. 79(5), pages 1357-1406, 09.
- Beck, Thorsten & Büyükkarabacak, Berrak & Rioja, Felix & Valev, Neven, 2009.
"Who Gets the Credit? And Does It Matter? Household vs. Firm Lending across Countries,"
CEPR Discussion Papers
7400, C.E.P.R. Discussion Papers.
- Beck Thorsten & Büyükkarabacak Berrak & Rioja Felix K. & Valev Neven T., 2012. "Who Gets the Credit? And Does It Matter? Household vs. Firm Lending Across Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-46, March.
- Beck, T.H.L. & Büyükkarabacak, B. & Rioja, F. & Valev, N., 2009. "Who Gets the Credit? And Does it Matter? Household vs Firm Lending Across Countries," Discussion Paper 2009-41, Tilburg University, Center for Economic Research.
- Beck, Thorsten & Buyukkarabacak, Berrak & Rioja, Felix & Valev, Neven, 2008. "Who gets the credit ? and does it matter ? household vs. firm lending across countries," Policy Research Working Paper Series 4661, The World Bank.
- Aleksander Berentsen & Gabriele Camera & Christopher Waller, 2005.
"Money, Credit and Banking,"
CESifo Working Paper Series
1617, CESifo Group Munich.
- Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "Money, Credit and Banking," IEW - Working Papers 219, Institute for Empirical Research in Economics - University of Zurich.
- Aleksander Berentsen & Gabriele Camera, 2004. "Money, Credit, and Banking," 2004 Meeting Papers 473, Society for Economic Dynamics.
- Maitreesh Ghatak & Timothy W. Guinnane, 1998.
"The Economics of Lending with Joint Liability: Theory and Practice,"
791, Economic Growth Center, Yale University.
- Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October.
- Ghatak, M. & Guinnane, T.W., 1998. "The Economics of Lending with Joint Liability: Theory and Practice," Papers 791, Yale - Economic Growth Center.
- Maitreesh Ghatak & Timothy W. Guinnane, 1998. "The Economics of Lending with Joint Liability: Theory and Practice," Discussion Papers 98-16, University of Copenhagen. Department of Economics.
- Holmstrom, Bengt & Tirole, Jean, 1997.
"Financial Intermediation, Loanable Funds, and the Real Sector,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(3), pages 663-91, August.
- Holmström, Bengt & Tirole, Jean, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," IDEI Working Papers 40, Institut d'Économie Industrielle (IDEI), Toulouse.
- Bengt Holmstrom & Jean Tirole, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," Working papers 95-1, Massachusetts Institute of Technology (MIT), Department of Economics.
- Imran Matin & David Hulme & Stuart Rutherford, 2002. "Finance for the poor: from microcredit to microfinancial services," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(2), pages 273-294.
- Easterly, William & Fischer, Stanley, 2001.
"Inflation and the Poor,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 33(2), pages 160-78, May.
- Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July.
- Joseph P. Kaboski & Robert M. Townsend, 2012. "The Impact of Credit on Village Economies," American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 98-133, April.
When requesting a correction, please mention this item's handle: RePEc:bsl:wpaper:2013/06. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (WWZ)
If references are entirely missing, you can add them using this form.