Pontus Rendahl, Lukas B. Freund, 14 December 2019

In recent years, some have claimed that banks create money ‘ex nihilo’. This column explains that banks do not create money out of thin air. From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise. In addition to bank solvency representing a constraint on private money creation, banks require access to liquid reserves in order to be able to engage in money creation. 

Frank Decker, Charles Goodhart, 14 December 2018

Credit mechanics and related approaches were developed by a group of German monetary economists during the 1920s-1960s. This column assesses the analysis of credit mechanics within the context of the current money supply debate, arguing that the theory qualified a one-sided, bank-centric view of money creation which is now often encountered in monetary theory. With the old standard textbook models of money creation now discredited, the authors advocate a more general approach to money supply theory involving credit mechanics. 

Jordi Galí, 03 October 2014

Many unconventional policies adopted by central banks in response to the Crisis failed to boost the economy. This column discusses the effects of a temporary money-financed fiscal stimulus. When a more realistic model is allowed, such a stimulus can have a strong effect on output and employment, and a mild effect on inflation. 


CEPR Policy Research