We propose creative destruction as the channel for inflation to impact growth. The banks reap revenue from higher rates of credit growth, attracting more labor into banks and decreasing the profit of entrepreneurs. But when the revenue is achieved by issuing more credit to entrepreneurs, part of...

We model creative destruction as a channel via which credit inflation affects growth. With a demand function for real credit, there is a dynamically consistent revenue-maximizing rate of credit inflation. A higher semi-elasticity of real credit demand with respect to credit inflation yields a...