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Housing price fluctuations and financial risk transmission: a spatial economic model

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  • Fengyun Liu
  • Honghao Ren
  • Chuanzhe Liu

Abstract

Financial risk derived from housing price fluctuations in China garnered much public concern recently. Based on the theoretical analyses of the transmission of financial risk from housing price fluctuations, this paper establishes panel spatial Durbin models to empirically analyse housing price fluctuations and financial risks transmission from a spatial economic perspective. Employing the panel provincial data from 1999–2015, we conduct an analysis on the 30 provinces in China as well as a comparison among the Eastern, Middle and Western regions of China. The results indicate that: (1) The soaring housing prices driven by bank credit, real estate developers’ heavy investment, local governments’ land revenue and individuals and households demands leads to financial risk in various sectors; (2) due to the ‘substitution effect’, the capital agglomeration in metropolis from bank credits, real estate developers, and individuals and households furthers the amassment of financial risks; (3) housing prices have a significant spatial contagion effect throughout the country, and financial risk could directly transmit across provinces through housing price fluctuations; (4) financial risks could indirectly transmit across provinces via the ‘imitative behaviour’ or ‘driving effect’ of different sectors for different regions of China.

Suggested Citation

  • Fengyun Liu & Honghao Ren & Chuanzhe Liu, 2019. "Housing price fluctuations and financial risk transmission: a spatial economic model," Applied Economics, Taylor & Francis Journals, vol. 51(53), pages 5767-5780, November.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:53:p:5767-5780
    DOI: 10.1080/00036846.2019.1619025
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    Cited by:

    1. Rahman, Md Lutfur & Troster, Victor & Uddin, Gazi Salah & Yahya, Muhammad, 2022. "Systemic risk contribution of banks and non-bank financial institutions across frequencies: The Australian experience," International Review of Financial Analysis, Elsevier, vol. 79(C).
    2. Axel Per Hedström & Gazi Salah Uddin & Md Lutfur Rahman & Bo Sjö, 2024. "Systemic risk in the Scandinavian banking sector," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 581-608, January.

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