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Monetary policy, asset prices and consumption in China

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  • Koivu, Tuuli

Abstract

This paper studies the wealth channel in China. Although the wealth channel has been found to be functioning in many advanced countries, its existence is yet to be explored in most emerging economies, also in China. In order to illuminate dynamics between monetary policy, asset prices and consumption, we use the structural vector autoregression method. The findings support the view that a loosening of China's monetary policy does indeed lead to higher asset prices. Furthermore, a positive shock to residential prices increases household consumption, while the role of stock prices seems to be small from the households’ point of view. Finally, we test the existence of the wealth channel more formally to find out whether those changes in asset prices that are caused by monetary policy are significant enough to increase consumption. In summary, the wealth channel remains weak but there are some signs of it via residential prices. The results are not that different from those attained for the advanced economies, where the size of the wealth channel has been found to be limited.

Suggested Citation

  • Koivu, Tuuli, 2012. "Monetary policy, asset prices and consumption in China," Economic Systems, Elsevier, vol. 36(2), pages 307-325.
  • Handle: RePEc:eee:ecosys:v:36:y:2012:i:2:p:307-325
    DOI: 10.1016/j.ecosys.2011.07.001
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    Cited by:

    1. Pirovano, Mara, 2012. "Monetary policy and stock prices in small open economies: Empirical evidence for the new EU member states," Economic Systems, Elsevier, vol. 36(3), pages 372-390.
    2. Nannan Yuan & Shigeyuki Hamori & Wang Chen, 2014. "House Prices and Stock Prices: Evidence from a Dynamic Heterogeneous Panel in China," Discussion Papers 1428, Graduate School of Economics, Kobe University.
    3. Zan Yang & Shuping Wu & Yanhao Shen, 2017. "Monetary Policy, House Prices, and Consumption in China: A National and Regional Study," International Real Estate Review, Asian Real Estate Society, vol. 20(1), pages 23-49.
    4. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1138-9 is not listed on IDEAS
    5. repec:eco:journ1:2017-02-72 is not listed on IDEAS
    6. Fatemeh Razmi & Azali Mohamed & Lee Chin & Muzafar Shah Habibullah, 2017. "How Does Monetary Policy Affect Economic Vulnerability to Oil Price Shock as against US Economy Shock?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 544-550.
    7. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2015. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-varying Vector Autoregressive Model," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(2), pages 176-196, August.
    8. repec:taf:rjapxx:v:21:y:2016:i:2:p:196-216 is not listed on IDEAS
    9. Taguchi, Hiroyuki & Tian, Lina, 2017. "Capital flows, money supply and property prices: The case of China," MPRA Paper 80730, University Library of Munich, Germany.
    10. Malika Akhatova & Mohd Pisal Zainal & Mansor H. Ibrahim, 2016. "Banking Models and Monetary Transmission Mechanisms in Malaysia: Are Islamic Banks Different?," Economic Papers, The Economic Society of Australia, vol. 35(2), pages 169-183, June.

    More about this item

    Keywords

    China; Monetary policy; Asset prices;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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