The anatomy of a credit crisis: the boom and bust in farm land prices in the United States in the 1920s
AbstractDoes 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.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2012-62.
Date of creation: 2012
Date of revision:
Other versions of this item:
- Raghuram Rajan & Rodney Ramcharan, 2012. "The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s," NBER Working Papers 18027, National Bureau of Economic Research, Inc.
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
This paper has been announced in the following NEP Reports:
- NEP-AGR-2012-10-20 (Agricultural Economics)
- NEP-ALL-2012-10-20 (All new papers)
- NEP-HIS-2012-10-20 (Business, Economic & Financial History)
- NEP-URE-2012-10-20 (Urban & Real Estate Economics)
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