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

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  • Wenli Cheng

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

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
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    References listed on IDEAS

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    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

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