The Impact of Monetary Policy on Housing Prices in China

16 Pages Posted: 15 Apr 2019

See all articles by Shen Chen

Shen Chen

Western Michigan University

Wan Wei

Arkansas Tech University

Peng Huang

Arkansas Tech University

Date Written: 2019

Abstract

This paper examines the impact of monetary policy on housing prices in China with a VAR model. Granger causality tests, impulse response functions, and variance decompositions are used to analyze the impacts of two monetary policy variables, market-based short-term interest rates and money supply, on housing prices. The results show that a contractionary monetary policy will cause the growth rate of housing prices to decline in China. In particular, a positive shock to market-based interest rates measured by the 7-day interbank offered rate has a significant and negative effect on housing prices in a range from five months to one and a half years after the shock takes place. However, our paper finds no evidence that supports the significant impact from money supply on housing prices. The results of our paper imply that the market-based short-term interest rates are effective monetary policy instruments for the central bank in China to conduct its policy to affect housing prices.

Keywords: Housing Prices, Monetary policy, China

JEL Classification: E52, G12

Suggested Citation

Chen, Shen and Wei, Wan and Huang, Peng, The Impact of Monetary Policy on Housing Prices in China (2019). Available at SSRN: https://ssrn.com/abstract=3355856 or http://dx.doi.org/10.2139/ssrn.3355856

Shen Chen

Western Michigan University ( email )

Kalamazoo, MI 49008
United States

Wan Wei

Arkansas Tech University ( email )

AR
United States

Peng Huang (Contact Author)

Arkansas Tech University ( email )

106 west o st
Russellville, AR 72801
United States

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