The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s

Raghuram Rajan and Rodney Ramcharan

American Economic Review, 2015, vol. 105, issue 4, 1439-77

Abstract: Does credit availability exacerbate asset price inflation? Are there long run consequences? During the farm land price boom and bust before the Great Depression, we find that credit availability directly inflated land prices. Credit also amplified the relationship between positive fundamentals and land prices, leading to greater indebtedness. When fundamentals soured, areas with higher credit availability suffered a greater fall in land prices and had more bank failures. Land prices and credit availability also remained disproportionately low for decades in these areas, suggesting that leverage might render temporary credit induced booms and busts persistent. We draw lessons for regulatory policy. (JEL E31, G21, G28, N22, N52, Q12, Q14)

JEL-codes: E31 G21 G28 N22 N52 Q12 Q14 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/aer.20120525
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Citations: View citations in EconPapers (43)

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Related works:
Working Paper: The anatomy of a credit crisis: the boom and bust in farm land prices in the United States in the 1920s (2012)
Working Paper: The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s (2012)
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