Credit, Land Speculation, and Low-Interest-Rate Policy

Tomohiro Hirano and Joseph Stiglitz

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Abstract: This paper analyses the impact of credit expansions arising from increases in collateral values or lower interest rate policies on long-term productivity and economic growth. We show that credit expansions associated with relaxation of real estate financing (capital investment financing) will be productivity-and growth-retarding (enhancing). Without financial regulation, expansionary monetary policy may so encourage land speculation using leverage that productive capital investment is decreased, leading to low interest rates and slow economic growth, while generating temporary asset booms. Its welfare impact differs markedly depending on the generation that experienced the asset price boom and the subsequent generations with low growth.

Date: 2025-03, Revised 2025-08
New Economics Papers: this item is included in nep-gro and nep-ure
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http://arxiv.org/pdf/2503.23552 Latest version (application/pdf)

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Working Paper: Credit, Land Speculation, and Low-Interest-Rate Policy (2025)
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