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Asset bubbles, collateral, and policy analysis

Jianjun Miao (), Pengfei Wang () and Jing Zhou

Journal of Monetary Economics, 2015, vol. 76, issue S, S57-S70

Abstract: This paper provides a theory of credit-driven asset bubbles in an infinite-horizon production economy. Entrepreneurs face idiosyncratic investment distortions and credit constraints. An intrinsically useless asset such as land serves as collateral for borrowing. A land bubble can form because land commands a liquidity premium. The land bubble can provide liquidity and relax credit constraints, but can also generate inefficient overinvestment. Its net effect is to reduce welfare. Property taxes, Tobin's taxes, macroprudential policy, and credit policy can prevent the formation of a land bubble.

Keywords: Land bubbles; Credit constraints; Margins; Tax policies; Liquidity; Multiple equilibria; Welfare (search for similar items in EconPapers)
Date: 2015
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