A General Equilibrium Analysis of Inflation and Microfinance in Developing Countries

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A General Equilibrium Analysis of Inflation and Microfinance in Developing Countries

Discussion paper / Internet publication

ID	4266107
Author(s)	Müller, Daniel
Author(s) at UniBasel	Müller, Daniel
Year	2013
Month and day	04-01
Title	A General Equilibrium Analysis of Inflation and Microfinance in Developing Countries
Series title	WWZ Discussion Papers
Volume	2013
Number	06
Pages	31
Publisher / Institution	WWZ, University of Basel
Keywords	Microfinance, Moral Hazard, Group Lending, Peer Monitoring and Monetary Policy
Abstract	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.
edoc-URL	https://edoc.unibas.ch/61348/
Full Text on edoc	Available

26/04/2024

Research Database / FORSCHUNGSDATENBANK