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

Mohammed Ait Lahcen () and Pedro Gomis-Porqueras

No 310, ECON - Working Papers from Department of Economics - University of Zurich

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.

Keywords: Money; credit; banking; financial inclusion; inequality (search for similar items in EconPapers)
JEL-codes: E40 E50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fle, nep-mac and nep-mon
Date: 2018-12, Revised 2019-07
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