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What Drives Urban Consumption in Mainland China? The Role of Property Price Dynamics

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  • Yu-Fu Chen

    (University of Dundee)

  • Michael Funke

    (Hamburg University and Hong Kong Institute for Monetary Research)

  • Aaron Mehrotra

    (Bank of Finland)

Abstract

This paper adds to the literature on wealth effects on consumption by disentangling house price effects on consumption for mainland China. In a stochastic modelling framework, the riskiness, rate of increase and persistence of house price movements have different implications for the consumption/housing ratio. We exploit the geographical variation in property prices by using a quarterly city-level panel dataset for the period 1998Q1 - 2009Q4 and rely on a panel error correction model. Overall, the results suggest a significant long run impact of property prices on consumption. They also broadly confirm the predictions from the theoretical model.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 152011.

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Length: 30 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:hkm:wpaper:152011

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Keywords: Consumption; House Prices; China; Panel Data;

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References

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Cited by:
  1. Bussière, Matthieu & Kalantzis, Yannick & Lafarguette, Romain & Sicular, Terry, 2013. "Understanding household savings in China: the role of the housing market and borrowing constraints," MPRA Paper 44611, University Library of Munich, Germany.
  2. Chen, Yu-Fu & Funke, Michael & Mehrotra, Aaron, 2011. "What drives urban consumption in mainland china? The role of property price dynamics," SIRE Discussion Papers 2011-50, Scottish Institute for Research in Economics (SIRE).
  3. Funke, Michael & Chen, Xi, 2012. "Real-time warning signs of emerging and collapsing Chinese house price bubbles," BOFIT Discussion Papers 27/2012, Bank of Finland, Institute for Economies in Transition.

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