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

Author

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  • Liu, Chunping

    () (Nottingham Trent University)

  • Ou, Zhirong

    () (Cardiff Business School)

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 over 80% 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 stabilise the housing market, the cost on output reduction would be rather limited.

Suggested Citation

  • Liu, Chunping & Ou, Zhirong, 2017. "What determines China's housing price dynamics? New evidence from a DSGE-VAR," Cardiff Economics Working Papers E2017/4, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2017/4
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    References listed on IDEAS

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    More about this item

    Keywords

    Housing price; Bubbles; Market spillovers; DSGE-VAR; China;

    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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