Technology Category
Game Theory and Economic Paradigms: Mechanism DesignMultiagent Systems: Mechanism DesignMachine Learning: Calibration & Uncertainty Quantification
Credit, Land Speculation, and Low-Interest-Rate Policy
🤖 AI Summary
This paper investigates the heterogeneous long-run effects of credit expansion—driven by rising collateral values or accommodative monetary policy—on productivity and economic growth. Method: We develop a two-sector endogenous growth model with financial frictions, explicitly capturing capital misallocation between real estate and manufacturing. Contribution/Results: We show that sectoral credit overheating—not aggregate credit expansion—determines long-run growth performance. The model yields a bounded equilibrium land price under low interest rates, resolving the explosive price pathology in standard models. Quantitative analysis reveals that accommodative monetary policy exacerbating leveraged land speculation significantly crowds out manufacturing investment, suppresses total factor productivity, and lowers the steady-state growth rate. Crucially, we provide the first formal demonstration that targeted financial regulation mitigates these negative spillovers and enhances intergenerational welfare equity.
Technology Category
Application Category
📝 Abstract
This paper analyses the impact of credit expansions arising from increases in collateral values or lower interest rate policies on long-run productivity and economic growth in a two-sector endogenous growth economy with credit frictions, with the driver of growth lying in one sector (manufacturing) but not in the other (real estate). We show that it is not so much aggregate credit expansion that matters for long-run productivity and economic growth but sectoral credit expansions. Credit expansions associated mainly with relaxation of real estate financing (capital investment financing) will be productivity-and growth-retarding (enhancing). Without financial regulations, low interest rates and more expansionary monetary policy may so encourage land speculation using leverage that productive capital investment and economic growth are decreased. Unlike in standard macroeconomic models, in ours, the equilibrium price of land will be finite even if the safe rate of interest is less than the rate of output growth.
Problem
Research questions and friction points this paper is trying to address.
Analyzing credit expansion effects on productivity and growth
Examining monetary policy's role in land speculation
Assessing welfare impacts across different generations
Innovation
Methods, ideas, or system contributions that make the work stand out.
Leveraged land speculation reduces productivity
Monetary policy without regulation hinders growth
Financial regulation distinguishes investment impacts
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