IDEAS home Printed from https://ideas.repec.org/p/mos/moswps/2025-20.html
   My bibliography  Save this paper

Credit Creation: The “Good”, the “Bad” and the “Ugly”

Author

Listed:
  • Wenli Cheng

    (Monash University)

Abstract

This paper develops a stock-flow consistent model to study the effects of three types of bank credit: credit for production, credit for consumption, and credit for asset speculation.The main findings are: (1) Credit for production (the “good”) enables capital formation and the adoption of more productive technologies; (2) Credit for consumption (the “bad”) diverts some real savings from capital formation to consumption, resulting in lower total output and less individual wealth; and (3) Credit for speculation (the “ugly”) funds real wealth transfers that are unrelated to wealth creation. It can result in higher prices in the goods market, which harms all consumers including those who do not participate in asset speculation.

Suggested Citation

  • Wenli Cheng, 2025. "Credit Creation: The “Good”, the “Bad” and the “Ugly”," Monash Economics Working Papers 2025-20, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2025-20
    as

    Download full text from publisher

    File URL: http://monash-econ-wps.s3-ap-southeast-2.amazonaws.com/RePEc/mos/moswps/2025-20.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mos:moswps:2025-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Simon Angus (email available below). General contact details of provider: https://edirc.repec.org/data/dxmonau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.