The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s
By Raghuram G. Rajan, Rodney Ramcharan. 2015
129 citations recorded by the source corpus.
Does credit availability exacerbate asset price inflation? What channels could it work through? What are the long run consequences? In this paper we address these questions by examining the farm land price boom (and bust) in the United States that preceded the Great Depression. We find that credit availability likely had a direct effect on inflating land prices. Credit availability may have also amplified the relationship between the perceived improvement in fundamentals and land prices. When the perceived fundamentals soured, however, areas with higher ex ante credit availability suffered a greater fall in land prices, and experienced higher bank failure rates. Land prices stayed low for a number of decades after the bust in areas that had higher credit availability, suggesting that the effects of booms and busts induced by credit availability might be persistent. We draw lessons for regulatory policy.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/1df45d8e4b09ae4536f74056900eb4739256ea75
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
In Finance
Citations in the corpus
- Bank Bias in Europe: Effects on Systemic Risk and Growth (2015, result): “Similar evidence is presented in Sette and Gobbi (2015). In the same vein, Beck et al.”
- Credit-Induced Boom and Bust (2017, unknown): “7 Finally, Rajan and Ramcharan (2012) examine the farm land price boom (and bust) in the United States that preceded the Great Depression, and show that credit availability likely had a direct effect on inflating land prices.”
- International Capital Flows and House Prices: Theory and Evidence (2012, unknown): “Rajan and Ramcharan ( 2011a ) exploit interstate banking restrictions to study the e¤ect of credit supply on land prices in the early 20th century U .”
- Speculative dynamics of prices and volume (2017, background): “During the boom, a surge in housing investment drew resources into construction from other sectors ( Charles et al., 2018 ) and contributed to a capital overhang that slowed the economic recovery ( Rognlie et al., 2017 ).”