A1099
Title: A stock-flow consistent analysis of credit cycles and the productivity puzzle
Authors: Saite Lu - Emmanuel College, University of Cambridge (United Kingdom) [presenting]
Abstract: The purpose is to investigate the macroeconomic consequences of credit cycles, focusing on the role of mortgage-driven household consumption in shaping growth and productivity dynamics. Employing a stock-flow consistent (SFC) model grounded in Nicholas Kaldors growth and productivity hypothesis, it is examined how household credit expansions, particularly through mortgage borrowing, affect aggregate demand and long-run economic performance. Kaldor's hypothesis posits that productivity growth is not exogenously given but endogenously driven by output growth, especially in the presence of increasing returns to scale. Accordingly, rising household credit initially stimulates output and productivity through enhanced demand, but over time, persistent reliance on debt-financed consumption leads to rising financial fragility, weaker investment, and slow growth. These dynamics offer a structural explanation for the productivity slowdown observed in many advanced economies following the global financial crisis (GFC). The model captures key interactions between households, firms, banks, and the government. Simulations calibrated to stylized macroeconomic trends reveal how credit cycles amplify macroeconomic instability and erode productivity gains. The contribution to the literature is on the post-GFC productivity puzzle by linking financial structures and household behavior to demand-led growth theory, and by underscoring the regulatory role of fiscal and macroprudential policy.
