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Does money supply drive housing prices in China?

Chi-Wei Su, Xiao-Qing Wang, Ran Tao and Hsu-Ling Chang

International Review of Economics & Finance, 2019, vol. 60, issue C, 85-94

Abstract: This study explores the causality between housing prices and money supply in order to support the dynamic equilibrium model in China. Considering structural changes, the long-run nexus using full-sample data is found to be unstable, suggesting the causality test is not reliable. Instead a time-varying rolling-window approach is employed to revisit the dynamic causal relationship. The results highlight the existence of a bidirectional causal link between housing prices and money supply in China. Specifically, soar and crash of housing prices manifest both positive and negative impacts on money supply in different sub-periods. In turn, money supply has a positive impact on housing prices, which supports the dynamic equilibrium model. In order to support a relatively stable housing price level, especially during structural economic changes, it is critical to facilitate the pegged money supply precautionary control and insure a reasonable and stable level of money supply into the real estate market.

Keywords: Money supply; Housing price; Rolling window; Bootstrap; Time-varying causality (search for similar items in EconPapers)
Date: 2019
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