Is There a Bubble in the Chinese Housing Market?
AbstractFor many analysts, the Chinese economy is spurred by a bubble in the housing market, probably driven by the fiscal stimulus package and massive credit expansion, with pos-sible adverse effects to the real economy. To get insights into the size of the bubble, the house price evolution is investigated by panel cointegration techniques. Evidence is based on a dataset for 35 major cities. Cointegration is detected between real house prices and a set of macroeconomic determinants, implying that a bubble exhibits mean-reverting behaviour. The results indicate that the bubble is about 25 percent of the equi-librium value implied by the fundamentals at the end of 2009. The bubble is particularly huge in the cities in the southeast coastal areas and special economic zones. While the impact of real house prices on CPI inflation appears to be rather strong, GDP growth may not be heavily affected. Thus, a decline of the bubble will likely have only modest effects on the real economy.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1081.
Length: 21 p.
Date of creation: 2010
Date of revision:
Chinese economy; panel cointegration; house price bubbles;
Other versions of this item:
- Dreger, Christian & Zhang, Yanqun, 2010. "Is there a bubble in the Chinese housing market?," Discussion Papers 290, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
- Christian Dreger & Yanqun Zhang, 2011. "Is there a bubble in the Chinese housing market?," ERSA conference papers ersa11p261, European Regional Science Association.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-11 (All new papers)
- NEP-TRA-2010-12-11 (Transition Economics)
- NEP-URE-2010-12-11 (Urban & Real Estate Economics)
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