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A model of endogenous financial inclusion: implications for inequality and monetary policy

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  • Mohammed Ait Lahcen
  • Pedro Gomis-Porqueras

Abstract

We propose a monetary model with endogenous credit market participation to study the impact of financial inclusion on inequality and welfare. We find that consumption inequality results from differences in agents' decision to access financial services. This heterogeneity generates a pecuniary externality, potentially resulting in some agents over-consuming. Moreover, monetary policy has distributional consequences. To quantify these effects, we calibrate our model to India, accounting for a third of observed consumption inequality. Finally, we analyze various policies aimed at increasing financial inclusion and find that a direct transfer to bank account holders yields the highest welfare and lowest consumption inequality.

Suggested Citation

  • Mohammed Ait Lahcen & Pedro Gomis-Porqueras, 2018. "A model of endogenous financial inclusion: implications for inequality and monetary policy," ECON - Working Papers 310, Department of Economics - University of Zurich, revised Feb 2021.
  • Handle: RePEc:zur:econwp:310
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    References listed on IDEAS

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    Cited by:

    1. Saroj Dhital & Pedro Gomis-Porqueras & Joseph H. Haslag, 2020. "Monetary and Fiscal Policy Interactions in a Frictional Model of Money, Nominal Public Debt and Banking," Working Papers 2002, Department of Economics, University of Missouri.
    2. Bernd Hayo, 2020. "Does Quantitative Easing Affect People’s Personal Financial Situation and Economic Inequality? The View of the German Population," MAGKS Papers on Economics 202023, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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    More about this item

    Keywords

    Money; credit; banking; financial inclusion; inequality;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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