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The housing market and excess monetary liquidity in China

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  • I-Chun Tsai

    (National University of Kaohsiung)

Abstract

This study investigated the performance of the housing market in China, determining that from a long-term perspective, an equilibrium relationship exists between housing prices and output. However, the housing market may not be efficient in the short run. Based on the correlation between housing returns and the economic growth rate, 3 distinct states can be discerned in the performance of the Chinese housing market. The first state is a bubble period, during which housing returns are excessively high and negatively correlated with the economic growth rate; the second state is a correction period, during which housing prices are corrected toward market fundamentals; and the third state is a calm market period, during which no substantial performance or trends manifest. This study determined that excess monetary liquidity significantly influenced the housing market states; however, no such effect was observed when the interest rate was adjusted. Thus, the findings implicate that if the People’s Bank of China intends to avoid losing control of the housing market, it should exercise monetary control to avoid excess liquidity in the housing market.

Suggested Citation

  • I-Chun Tsai, 2017. "The housing market and excess monetary liquidity in China," Empirical Economics, Springer, vol. 53(2), pages 599-615, September.
    • Handle: RePEc:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1138-9
    DOI: 10.1007/s00181-016-1138-9
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    More about this item

    Keywords

    Chinese housing market; Excess liquidity; Housing bubble; Interest rate; Monetary policy;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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