Policy failure or success? Detecting market failure in China's housing market

W.D. Chen

Economic Modelling, 2016, vol. 56, issue C, 109-121

Abstract: Due to a high vacancy rate of residential homes, housing prices remain sticky in most urban areas of China, which causes higher searching and bargaining costs. With an inefficient outcome, deadweight loss and market failure arises. To assess the Chinese government's housing policies in 2010, we develop a dynamic equilibrium model, in which we demonstrate how the sticky price results in market failure. We apply a multiple-factor panel data model to show that a high degree of market failure is associated with a high ratio of persistent components in the gap between price and equilibrium. As the persistent components will cause the market's instability, we can use the ratio between persistent and mean reverting components as an indicator to supervise the status of the housing market.

Keywords: Housing market; Market failure; Transaction cost; Mean reversion; Persistency; Bootstrap method (search for similar items in EconPapers)
JEL-codes: C23 C52 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:56:y:2016:i:c:p:109-121

DOI: 10.1016/j.econmod.2016.03.024

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