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Land finance, land attracting investment and housing price fluctuations in China

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  • Wang, Ren
  • Hou, Jie

Abstract

We study the relationship between government imposed land price discrimination and housing price fluctuation in China. Providing the first DSGE model considering such discrimination, we show that land finance, monetary easing policy, labor preference and housing demand shocks accounts for 39.01%, 24.89%, 14.45% and 9.26% of housing price variation from 2008Q1 to 2017Q4, respectively. Counterfactual simulation proves that the current land price policy in China stimulates the growth of manufacturing sector at the expense of inflated housing cost and reduced multiplier of government spending. We also find that easing monetary policy with land price discrimination contributes to elevated housing price inflation and lowered consumption good price inflation.

Suggested Citation

  • Wang, Ren & Hou, Jie, 2021. "Land finance, land attracting investment and housing price fluctuations in China," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 690-699.
    • Handle: RePEc:eee:reveco:v:72:y:2021:i:c:p:690-699
    DOI: 10.1016/j.iref.2020.12.021
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    References listed on IDEAS

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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