The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s
- (pp. 1439-77)
Abstract
Does credit availability exacerbate asset price inflation? Are there long run consequences? During the farm land price boom and bust before the Great Depression, we find that credit availability directly inflated land prices. Credit also amplified the relationship between positive fundamentals and land prices, leading to greater indebtedness. When fundamentals soured, areas with higher credit availability suffered a greater fall in land prices and had more bank failures. Land prices and credit availability also remained disproportionately low for decades in these areas, suggesting that leverage might render temporary credit induced booms and busts persistent. We draw lessons for regulatory policy. (JEL E31, G21, G28, N22, N52, Q12, Q14)Citation
Rajan, Raghuram, and Rodney Ramcharan. 2015. "The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s." American Economic Review, 105 (4): 1439-77. DOI: 10.1257/aer.20120525Additional Materials
JEL Classification
- E31 Price Level; Inflation; Deflation
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- N22 Economic History: Financial Markets and Institutions: U.S.; Canada: 1913-
- N52 Economic History: Agriculture, Natural Resources, Environment, and Extractive Industries: U.S.; Canada: 1913-
- Q12 Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
- Q14 Agricultural Finance