Credit Expansion, 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 decreases in collateral requirements or more expansionary monetary policies on long-term productivity in a model with endogenous growth. Credit expansions associated with relaxation of land collateral financing (capital collateral financing) will be productivity-and growth-retarding (enhancing). Without appropriate financial regulation, expansionary monetary policy may so encourage land speculation using leverage that productive capital investment is decreased; there is a temporary asset boom, but slower economic growth. The generation that experienced the asset price boom is better off, but subsequent generations are worse off because of low growth.

Date: 2025-03, Revised 2026-02
New Economics Papers: this item is included in nep-gro and nep-ure
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