Financial shock transmission in China's banking and housing sectors: A network analysis

Huifu Nong, Ziliang Yu and Yang Li

Economic Analysis and Policy, 2024, vol. 82, issue C, 701-723

Abstract: Rising housing prices in China present a significant risk to financial and economic stability. Our study investigates this "gray rhino" risk by analyzing the financial shock transmission network, using a novel high-dimensional network approach applied to data from 45 real estate firms and 15 banks from 2011 to 2023. We discover that the network's connectedness is predominantly short-term and internal to each sector, with weaker inter-sectoral links. Key macroeconomic indicators, notably monetary policy uncertainty, and inflation, significantly drive this connectedness. Our results indicate that, despite concerns, China's real estate risk remains within manageable bounds, offering critical insights for market stakeholders.

Keywords: Real estate companies; Banks; LASSO-VAR; Spillover network; China (search for similar items in EconPapers)
JEL-codes: G12 G21 R31 R38 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:82:y:2024:i:c:p:701-723

DOI: 10.1016/j.eap.2024.04.007

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