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Housing demand or money supply? A new Keynesian dynamic stochastic general equilibrium model on China’s housing market fluctuations

Xing-Chun Wen and Ling-Yun He

Physica A: Statistical Mechanics and its Applications, 2015, vol. 432, issue C, 257-268

Abstract: There is a bitter controversy over what drives the housing price in China in the existing literature. In this paper, we investigate the underlying driving force behind housing price fluctuations in China, especially focusing on the role of housing demand shock with that of money supply shock in explaining housing price movements, by a new Keynesian dynamic stochastic general equilibrium model. Empirical results suggest that it is housing demand, instead of money supply, that mainly drives China’s housing price movements. Relevant policy implication is further discussed, namely, whether to consider the housing price fluctuations in the conduct of monetary policy. By means of the policy simulations, we find that a real house price-augmented money supply rule is a better monetary policy for China’s economy stabilization.

Keywords: Housing price; Housing demand; Money supply; Monetary policy (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.physa.2015.03.040

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