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Has fiscal expansion inflated house prices in China? Evidence from an estimated DSGE model

Author

Listed:
  • Liu, Chunping

    () (Nottingham Trent University)

  • Ou, Zhirong

    () (Cardiff Business School)

Abstract

A canonical DSGE model for housing, extended to embrace government spending and government investment, is estimated on Chinese data to evaluate the impact of fiscal policy on house prices. Government spending substitutes for housing; a rise in government spending lowers house prices, but its impact is weak. Government investment generates a wealth effect, causing housing demand, and therefore prices, to rise; its variation had a substantial impact on the boom-bust cycles of house prices in the past decade. Both government spending and government investment are effective instruments for manipulating output. However, their different impacts on house prices would recommend policies to count more on spending if fiscal expansion is not to sacrifice the stability of house prices.

Suggested Citation

  • Liu, Chunping & Ou, Zhirong, 2019. "Has fiscal expansion inflated house prices in China? Evidence from an estimated DSGE model," Cardiff Economics Working Papers E2019/18, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2019/18
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    Keywords

    fiscal policy; housing price; China; DSGE model;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • 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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