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Monetary policy and housing prices; a case study of Chinese experience in 1999-2010

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  • Zhang, Yanbing

    ()
    (BOFIT)

  • Hua, Xiuping

    (BOFIT)

  • Zhao, Liang

    (BOFIT)

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    Abstract

    How do monetary policy variables affect housing prices? In this paper we apply a non-linear modelling approach, the Nonlinear Auto Regressive Moving Average with eXogenous inputs (NAR-MAX), to investigate determinants of housing prices in China over the period 1999:01 to 2010:06. The NARMAX approach has an advantage over prevailing methods in that it automatically selects linear and non-linear forms of variables and the numbers of corresponding lags according to statistical properties. Both linear and non-linear estimation results identify a number of key monetary and price variables, including most notably mortgage rate, producer price, broad money supply and real effective exchange rate. Meanwhile, some key real economic variables such as income are not independently significant. Our findings should be helpful in understanding the formation of housing prices in China and will provide some valuable insights on how to use monetary policies to manage asset prices.

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    File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/DP1711.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 17/2011.

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    Length: 38 pages
    Date of creation: 22 Aug 2011
    Date of revision:
    Handle: RePEc:hhs:bofitp:2011_017

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    Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
    Phone: + 358 10 831 2268
    Fax: + 358 10 831 2294
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    Web page: http://www.suomenpankki.fi/bofit_en/
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    Keywords: housing prices; monetary policy; NARMAX; China;

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