Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123444
Authors: 
Müller, Daniel
Year of Publication: 
2013
Series/Report no.: 
WWZ Discussion Paper 2013/06
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.
Subjects: 
Microfinance
Moral Hazard
Group Lending
Peer Monitoring and Monetary Policy
JEL: 
D82
E44
G21
O16
Document Type: 
Working Paper

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