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

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  • Tomohiro Hirano
  • Joseph E. Stiglitz

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.

Suggested Citation

  • Tomohiro Hirano & Joseph E. Stiglitz, 2025. "Credit Expansion, Land Speculation, and Low-Interest-Rate Policy," Papers 2503.23552, arXiv.org, revised Feb 2026.
    • Handle: RePEc:arx:papers:2503.23552
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    References listed on IDEAS

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    3. Franklin Allen & Gadi Barlevy & Douglas Gale, 2022. "Asset Price Booms and Macroeconomic Policy: A Risk-Shifting Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(2), pages 243-280, April.
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    Cited by:

    1. Muellbauer, John, 2025. "Land, Housing and the British Economy: background paper," INET Oxford Working Papers 2025-25, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, revised Feb 2026.

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