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

64 Pages Posted: 28 Apr 2012 Last revised: 5 Apr 2023

See all articles by Raghuram G. Rajan

Raghuram G. Rajan

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

Rodney Ramcharan

University of Southern California, Marshall School of Business

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Date Written: April 2012

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.

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 (April 2012). NBER Working Paper No. w18027, Available at SSRN: https://ssrn.com/abstract=2047297

Raghuram G. Rajan (Contact Author)

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Rodney Ramcharan

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