The spillovers and heterogeneous responses of housing prices: a GVAR analysis of China's 35 major cities

Previous literature seldom discusses city-level housing price spillovers and city-level heterogeneous responses of housing prices to interest rate shocks. This paper adopts the recently developed globe vector autoregression (GVAR) model to empirically study not only the spillovers of housing prices and real income per capita among China's 35 major cities but also the impacts of interest rate shocks on housing prices among these cities. The empirical results show that China's first-tier cities, such as Beijing and Shanghai, have comparatively large spillovers of housing prices, while spillovers in central and western cities are not significant. The housing prices of first-tier and eastern cities are affected not only by the real income per capita of these cities themselves, but also by that of other cities to a large extent, while housing prices of central and western cities are mainly affected by the real income per capita of these cities themselves. Real interest rate shocks have a smaller influence on the housing prices of central and western cities, but a greater influence on those of first-tier cities and eastern cities. Empirical studies have definite policy implications. In order to stabilize housing prices, the Chinese government should promote the regional equalization of public goods, intensify housing purchase restrictions and implement sub-regional real estate policies. Adjusting interest rate policies is also an implementable option for stabilizing housing prices.