Monetary policy, hot money and housing price growth across Chinese cities

Xiaoyu Huang, Tao Jin and Ji Zhang

Applied Economics, 2021, vol. 53, issue 59, 6855-6877

Abstract: We use a dynamic hierarchical factor model to identify the national, regional and local factors of the city-level housing price growth in China. During the zero-lower-bound (ZLB) episode in the U.S., local factors account for 78% of variations in the month-on-month city-level housing price growth. However, as the time horizon extends, the national factor gets a larger variance share, reaching 51% in a half-year horizon. This indicates that the city-level housing price growth in China is more of a national phenomenon in the long run. We then use a VAR model to investigate the driving forces of the national factor and find that monetary policy and hot money shocks affect the national housing price growth significantly. A tightening monetary policy shock has a significant negative impact on the national factor, which lasts for more than 2 years. An increase in hot money inflows causes a significant but transitory rise in the national factor. Moreover, we find that the quantitative easing measure adopted by the U.S. Fed is behind the surge of capital inflows into China.

Date: 2021
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Working Paper: Monetary Policy, Hot Money and Housing Price Growth across Chinese Cities (2017)
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DOI: 10.1080/00036846.2021.1949433

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