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Demonetisation, Crime Perception and Welfare: Theory and Evidence from Kenya

Author

Listed:
  • Jiao Wang
  • Sambit Bhattacharyya
  • Stephen Lartey
  • Chirantan Chatterjee

Abstract

What is the welfare cost of demonetisation in emerging economies? We find Kenya's 2019 demonetisation accelerated mobile money use, improved aggregate crime perception, and imposed income losses. Using a Two-Agent New Keynesian (TANK) model with cash-in-advance constrained households and working capital constrained informal firms, we establish three underlying general equilibrium mechanisms. First, precautionary cash hoarding by informal firms drain household liquidity and is contractionary. Second, cash-digital complementarity in agriculture exposes cash-only households to welfare losses. Third, crime perception of urban unconstrained households increases due to local wage collapse, whereas the same for constrained households decline due to reduced theft exposure.

Suggested Citation

  • Jiao Wang & Sambit Bhattacharyya & Stephen Lartey & Chirantan Chatterjee, 2026. "Demonetisation, Crime Perception and Welfare: Theory and Evidence from Kenya," CAMA Working Papers 2026-58, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2026-58
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    File URL: https://crawford.anu.edu.au/sites/default/files/2026-07/58_2026_Wang_Bhattacharyya_Lartey_Chatterjee.pdf
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    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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