Credit Bubbles and Land Bubbles
AbstractIn modern macroeconomic models it is difficult to obtain explosive price bubbles on assets with positive net supply. This paper shows that it is possible to obtain explosive bubbles in certain situations when assets such as land are used as collateral and lenders are willing to lend freely against it. As land prices rise, collateral constraints become relaxed, and households wish to borrow more. If the financial sector or government is willing to accommodate this by issuing credit indefinitely, this can lead to self-fulfilling equilibria where land has a positive, purely speculative, value. Furthermore, such bubbles need not affect real allocations in the absence of other market imperfections, even when land is a factor in production
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1635.
Length: 18 pages
Date of creation: Jul 2010
Date of revision:
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Bubbles with collateral and infinite credit
by Economic Logician in Economic Logic on 2010-09-09 14:30:00
- Weekly Wisdom Roundup 95: A Linkfest For The Smartest People On The Web
by Miguel in Simoleon Sense on 2010-09-12 19:06:55
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dieter Stribny).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.