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

Tomohiro Hirano; Joseph E. Stiglitz

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arXiv · 2503.23552

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

Tomohiro Hirano·Joseph E. 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.

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Tomohiro Hirano, Joseph E. Stiglitz. 2025-03-30. Credit Expansion, Land Speculation, and Low-Interest-Rate Policy. https://arxiv.org/abs/2503.23552

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