Journal of Economic Literature
Vol. 37, No. 4, December 1999
Contents
The Microfinance Promise
Jonathan Morduch 1569
Inequality and Economic Growth: The Perspective of
the New Growth Theories
Philippe Aghion, Eve Caroli, and Cecilia García-Peñalosa 1615
The Science of Monetary Policy: A New Keynesian Perspective
Richard Clarida, Jordi Galí, and Mark Gertler 1661
Book Reviews
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The Microfinance Promise
Jonathan Morduch
In the past decade, microfinance programs have demonstrated that it
is possible to lend to low-income households while maintaining high repayment
rates-even without requiring collateral. The programs promise a revolution
in approaches to alleviating poverty and spreading financial services,
and millions of poor households are served globally. A growing body of
economic theory demonstrates how new contractual forms offer a key to
microfinance success-particularly the use of group-lending contracts with
joint liability. For the most part, however, high repayment rates have
not translated into profits, and studies of impacts on poverty yield a
mixed picture. In describing emerging tensions, the paper highlights the
diversity of innovative mechanisms beyond group-lending contracts, the
measurement of financial sustainability, the estimation of economic and
social impacts, the costs and benefits of subsidization, and the potential
to reduce poverty through savings programs rather than just credit. The
promise of microfinance has pushed far ahead of the evidence, and an agenda
is put forward for addressing critical empirical gaps and sharpening the
terms of policy discussion.
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Inequality and Economic Growth: The Perspective of the New Growth Theories
Philippe Aghion, Eve Caroli, and Cecilia García-Peñalosa
We analyze the relationship between inequality and economic growth from
two directions. The first part of the survey examines the effect of inequality
on growth, showing that when capital markets are imperfect, there is not
necessarily a trade-off between equity and efficiency. It therefore provides
an explanation for two recent empirical findings, namely, the negative
impact of inequality and the positive effect of redistribution upon growth.
The second part analyzes several mechanisms whereby growth may increase
wage inequality, both across and within education cohorts. Technical change,
and in particular the implementation of "General Purpose Technologies,"
stands as a crucial factor in explaining the recent upsurge in wage inequality.
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The Science of Monetary Policy: A New Keynesian Perspective
Richard Clarida, Jordi Galí, and Mark Gertler
The paper reviews the recent literature on monetary policy rules. We
exposit the monetary policy design problem within a simple baseline theoretical
framework. We then consider the implications of adding various real world
complications. Among other things, we show that the optimal policy implicitly
incorporates inflation targeting. We also characterize the gains from
making a credible commitment to fight inflation. In contrast to conventional
wisdom, we show that gains from commitment may emerge even if the central
bank is not trying to inadvisedly push output above its natural level.
We also consider the implications of frictions such as imperfect information.
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