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What drives housing dynamics in China? a sign restrictions VAR approach

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  • Timothy Yang Bian
  • Pedro Gete

Abstract

We study housing dynamics in China using vector autoregressions identified with theoryconsistent sign restrictions. We study five potential drivers: 1) Population increases; 2) a relaxation of credit standards, for example, due to the shadow banking system; 3) increasing preferences towards housing, for example, due to a housing bubble or housing being a status asset to be competitive in the marriage market; 4) an increase in the savings rate; and 5) expected productivity progress. Our results show that fundamental shocks (population, credit and productivity) play a major role in the dynamics of house prices and residential investment before 2009. Preference shocks seem especially relevant in the last several years, and when the estimation uses price indices not coming from China?s National Bureau of Statistics.

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  • Timothy Yang Bian & Pedro Gete, 2014. "What drives housing dynamics in China? a sign restrictions VAR approach," Globalization Institute Working Papers 193, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:193
    DOI: 10.24149/gwp193
    Note: Published as: Bian, Timothy Yang and Pedro Gete (2015), "What Drives Housing Dynamics in China? A Sign Restrictions VAR Approach," Journal of Macroeconomics 46: 96-112.
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    2. Adrienne Mack & Enrique Martinez-Garcia, 2011. "A cross-country quarterly database of real house prices: a methodological note," Globalization Institute Working Papers 99, Federal Reserve Bank of Dallas.
    3. Pedro Gete, 2015. "Housing demands, savings gluts and current account dynamics," Globalization Institute Working Papers 221, Federal Reserve Bank of Dallas.
    4. Kajuth, Florian, 2021. "Land leverage and the housing market: Evidence from Germany1," Journal of Housing Economics, Elsevier, vol. 51(C).
    5. Shuping Shi & Abbas Valadkhani & Russell Smyth & Farshid Vahid, 2016. "Dating the Timeline of House Price Bubbles in Australian Capital Cities," The Economic Record, The Economic Society of Australia, vol. 92(299), pages 590-605, December.
    6. Wojciech Maliszewski & Miss Mali Chivakul & Mr. Waikei R Lam & Xiaoguang Liu & Mr. Alfred Schipke, 2015. "Understanding Residential Real Estate in China," IMF Working Papers 2015/084, International Monetary Fund.
    7. Gregor Bäurle & Rolf Scheufele, 2019. "Credit cycles and real activity: the Swiss case," Empirical Economics, Springer, vol. 56(6), pages 1939-1966, June.
    8. 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.
    9. Gabrieli, Tommaso & Panagiotidis, Theodore & Xu, Yishuang, 2019. "Pair-wise convergence of intra-city house prices in Beijing," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    10. Mengzhu Zhang & Si Qiao & Xiang Yan, 2021. "The secondary circuit of capital and the making of the suburban property boom in postcrisis Chinese cities," Environment and Planning A, , vol. 53(6), pages 1331-1355, September.
    11. Baumeister, Christiane & Hamilton, James D., 2020. "Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 109(C).
    12. Li, Victor Jing & Cheng, Andy Wui Wing & Cheong, Tsun Se, 2017. "Home purchase restriction and housing price: A distribution dynamics analysis," Regional Science and Urban Economics, Elsevier, vol. 67(C), pages 1-10.
    13. Chunping Liu & Zhirong Ou, 2017. "What determines China's housing price dynamics? New evidence from a DSGE-VAR," NBS Discussion Papers in Economics 2017/04, Economics, Nottingham Business School, Nottingham Trent University.
    14. Jonas Kibala Kuma, 2018. "Structural VAR Model : Theory review and practices on software [Le Modèle VAR Structurel : Eléments de théorie et pratiques sur logiciels]," Post-Print cel-01771221, HAL.
    15. Chen, Hongyi & Chow, Kenneth & Tillmann, Peter, 2017. "The effectiveness of monetary policy in China: Evidence from a Qual VAR," China Economic Review, Elsevier, vol. 43(C), pages 216-231.
    16. Min Jiang & Liangjie Xin & Xiubin Li & Minghong Tan, 2016. "Spatiotemporal Variation of China’s State-Owned Construction Land Supply from 2003 to 2014," Sustainability, MDPI, Open Access Journal, vol. 8(11), pages 1-16, November.
    17. Baumeister, Christiane & Hamilton, James D., 2021. "Reprint: Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 114(C).
    18. Kajuth, Florian, 2020. "The German housing market cycle: Answers to FAQs," Discussion Papers 20/2020, Deutsche Bundesbank.

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • 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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