Abstract

http://ssrn.com/abstract=2194581
 
 

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The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s


Raghuram G. Rajan


University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Rodney Ramcharan


Board of Governors of the Federal Reserve System (FRB)

September 2014

American Economic Review, Forthcoming

Abstract:     
Does 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.

Number of Pages in PDF File: 63

Keywords: Consumer Credit, banking, land prices

JEL Classification: E44, G21

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Date posted: December 30, 2012 ; Last revised: October 2, 2014

Suggested Citation

Rajan, Raghuram G. and Ramcharan, Rodney, The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s (September 2014). American Economic Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2194581 or http://dx.doi.org/10.2139/ssrn.2194581

Contact Information

Raghuram G. Rajan
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)
Rodney Ramcharan (Contact Author)
Board of Governors of the Federal Reserve System (FRB) ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
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