HAS MONETARY POLICY CAUSED HOUSING PRICES TO RISE OR FALL IN CHINA?

Xiao-Cui Yin (), Chi-Wei Su and Ran Tao ()
Additional contact information
Xiao-Cui Yin: School of Economics, Ocean University of China, Science and Information College, Qingdao Agriculture University, P. R. China
Chi-Wei Su: School of Economics, Qingdao University, P. R. China
Ran Tao: Technological Center, Shandong Entry-Exit Inspection and Quarantine Bureau, Qingdao, P. R. China

The Singapore Economic Review (SER), 2020, vol. 65, issue 06, 1601-1618

Abstract: This paper examines whether broader money supply (M2) and interest rate as two monetary policy tools may have differently affected housing prices in China. Empirical results show that there is a co-movement between housing prices and M2 in the short run and it becomes more pronounced after 2006 in the medium run. In addition, generally M2 positively affects housing prices. This supports the asset price channel which indicates that an easing monetary policy offers ample liquidity and results in raising the housing prices. The excess liquidity after 2008 spread to housing market, resulting in too much money chasing relatively few assets and triggering a surge in housing prices. On the other hand, we observe that co-movement between housing prices and interest rate is not very evident in most time. Moreover, we find that interest rate has a positive effect on housing prices which is not consistent with the user cost approach and indicates that a contracting monetary policy is not effective in curbing housing market. Not completely liberalized interest rate system and the high return on housing investments reduce the impact of interest rate on housing prices. These findings indicate that money supply is more effective than interest rate as channel to control the housing prices in China. The results are helpful for the scientific formulation of monetary policy for reasonable regulation of the market.

Keywords: Housing market; money supply; interest rate; continuous wavelet method (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590818500145
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:65:y:2020:i:06:n:s0217590818500145

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590818500145

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().