2024/05/09 by Tomohiro Hirano, Joseph E. Stiglitz, Hirano, Tomohiro +1
Economics, Econometrics and Finance · #Economic Theory and Policy #FOS: Economics and business #Theoretical Economics (econ.TH)
paper · pdf · doi:10.48550/arxiv.2405.05901
openalex publication_date 2024/05/09 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper presents a model that studies 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 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.