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What determines China's housing price dynamics? New evidence from a DSGE‐VAR

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  • Chunping Liu
  • Zhirong Ou

Abstract

We investigate what determines China's housing price dynamics using a DSGE‐VAR estimated with priors allowing for the featured operating of normal and “shadow” banks in China, with data observed between 2001 and 2014. We find that the housing demand shock, which is the essential factor for housing price “bubbles” to happen, accounts for near 90% of the housing price fluctuation. We also find that a prosperous housing market could have led to future economic growth, though quantitatively its marginal impact is small. But this also means that, for policy‐makers who wish to stabilize the housing market, the cost on output reduction would be rather limited.

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  • Chunping Liu & Zhirong Ou, 2021. "What determines China's housing price dynamics? New evidence from a DSGE‐VAR," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3269-3305, July.
  • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:3:p:3269-3305
    DOI: 10.1002/ijfe.1962
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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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