Summary:
The modern financial system still faces the problem of limited commitment to a certain extent, as co mmercial banks still need enterprises to reduce their loan risk by providing guaranteed future income (i.e., safe assets). Meanwhile, land assets not only have the value of being difficult to replace but are also quasi-safe assets. Therefore, the land mortgage financing mode provides a way for the physical sector to win the trust of commercial banks at a low opportunity cost, which provides an important boost to the growth of the economic aggregate in a specific stage. However, it also binds the credit of the whole society (mainly reflected in the deposit money supply) to a single asset: land. When the land asset price bubble bursts, it will severely damage the financial credit of the whole society. In fact, the deep correlation between land asset prices and the financial credit is one of the important reasons for the creation of the land asset bubble: this is the systemic financial risk implied by the price fluctuation of land assets. Studying the relationship between land asset prices and the liquidity supply is helpful to understand not only the collateral and investment demand information reflected in the asset price that must be considered in the central bank's liquidity investment process but also the sources of the systemic financial risks related to land assets and the solutions to these risks. The research on this topic can be traced back to the positive feedback mechanism between land asset prices and the liquidity supply discussed by Kiyotaki and Moore (1997). To better understand the financial risk of the asset bubble caused by land mortgage leverage, this paper also introduces the mortgage asset price analysis represented by Geanakoplos (2010, 2014). In addition, as China's banking system is the center of its financial system, this paper discusses the ability of the base money supply led by the central bank to eliminate the land asset price bubble by restricting mortgage leverage and the impact of credit asset securitization on this ability. To address these issues, this paper establishes a theoretical model framework, the core setting of which is that land assets have the dual attributes of productive capital and quasi-safe assets, while bank loans are subject to the triple constraints of loan demand, mortgage assets and credit lines. The conclusions of this paper are as follows. First, when land asset prices are lower than a critical value determined by the base money supply, they are positively correlated with the deposit money liquidity supply. This is consistent with the enterprise leverage cycle because land asset prices not only affect the collateral value of enterprises but also reflect the social investment demand to a certain extent. Second, the correlation between land asset prices and the deposit money liquidity supply is based on the mortgage mechanism, which makes its change have the characteristics of expected self-realization. Third, the base money supply can guide the change in land asset prices by affecting the bank credit line and then by limiting the role of leverage. The premise is that the central bank should be able to grasp the reasons for the exogenous change in land asset prices. Finally, credit asset sec uritization will not only improve the correlation between the deposit money supply and land price but also weaken the ability of the base money supply to guide the land price. Some important conclusions are verified by characteristic fact analysis. This paper develops the theory of liquidity economics by using the literature as a basis to further the analysis of “the significance of the dual attributes of land assets and the triple constraints of bank loans,” “the constraints of base money supply on land mortgage leverage” and “the interference of credit asset securitization on the effect of monetary policy.” For the convenience of discussion, the total amount of land assets in this paper is fixed. Future research can include the effects of land finance (related to land transfer and infrastructure construction) and real estate investment on the total amount of land assets. This paper has three implications for policy. First, it is helpful to understand how the effect of monetary policy is affected by land asset prices. Specifically, this paper provides an explanation for an important practical phenomenon: in the balance sheet downward range where land assets are relatively low, M2 growth is more synchronized with the change in land asset prices than the growth of the base money supply. Second, it is helpful to understand the source of systemic financial risk, especially to analyze why changes in land asset prices show the characteristics of expected self-realization. Third, the paper discusses some ideas to resolve systemic financial risks. Specifically, it analyzes the ability of traditional monetary policy to eliminate the land asset price bubble and its constraints, as well as the constraints of credit asset securitization (representing land derivative financial assets in a broad sense) on this ability, which is of great significance for understanding China's policy of restricting real estate mortgage leverage since 2020.
郭杰, 饶含. 土地资产价格波动与经济中的流动性供给——基于以地融资视角的研究[J]. 金融研究, 2022, 505(7): 76-93.
GUO Jie, RAO Han. Land Asset Price Fluctuation and Liquidity Supply: A Study from the Perspective of Land Financing. Journal of Financial Research, 2022, 505(7): 76-93.
