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A General Equilibrium Analysis of Inflation and Microfinance in Developing Countries

Müller, Daniel. (2013) A General Equilibrium Analysis of Inflation and Microfinance in Developing Countries. WWZ Discussion Papers, 2013 (06).

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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.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Müller, Daniel
Item Type:Working Paper
Publisher:WWZ, University of Basel
Number of Pages:31
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Language:English
Identification Number:
  • handle: RePEc:bsl:wpaper:2013/06
Last Modified:21 Mar 2018 14:16
Deposited On:08 Mar 2018 08:18

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