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Housing Prices and Business Cycle in China: A DSGE Analysis

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  • He, Qing
  • Liu, Fangge
  • Qian, Zhongxin
  • Chong, Terence Tai Leung

Abstract

We investigate the interaction between the real estate market and the business cycle volatility in China over the past two decades. A Bayesian dynamic stochastic general equilibrium (DSGE) model with nominal stickiness and collateral constraints is estimated. It is found that shocks from the housing market (e.g., loan-to-value ratio and housing preference shocks) affect the macroeconomy of China. The interactive feedback between credit constraints and housing prices amplifies the impact of various economic shocks, which plays an important role in explaining the business cycle volatility in China.

Suggested Citation

  • He, Qing & Liu, Fangge & Qian, Zhongxin & Chong, Terence Tai Leung, 2016. "Housing Prices and Business Cycle in China: A DSGE Analysis," MPRA Paper 75921, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:75921
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    References listed on IDEAS

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    1. Hideaki Hirata & M. Ayhan Kose & Christopher Otrok & Marco E Terrones, 2013. "Global House Price Fluctuations: Synchronization and Determinants," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 119-166.
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    4. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    5. He, Qing & Leung, Pak-Ho & Chong, Terence Tai-Leung, 2013. "Factor-augmented VAR analysis of the monetary policy in China," China Economic Review, Elsevier, vol. 25(C), pages 88-104.
    6. Benito, Andrew, 2006. "The down-payment constraint and UK housing market: Does the theory fit the facts?," Journal of Housing Economics, Elsevier, vol. 15(1), pages 1-20, March.
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    Cited by:

    1. Gai, Yue & Minford, Patrick & Ou, Zhirong, 2020. "Is housing collateral important to the business cycle? Evidence from China," Journal of International Money and Finance, Elsevier, vol. 109(C).
    2. Fan, Ying, 2022. "Demand shocks and price stickiness in housing market dynamics," Economic Modelling, Elsevier, vol. 110(C).
    3. Chi-Wei Su & Xiao-Cui Yin & Hsu-Ling Chang & Hai-Gang Zhou, 2019. "Are the stock and real estate markets integrated in China?," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(4), pages 741-760, December.
    4. Lee, Kiryoung & Jeon, Yoontae, 2020. "Measuring Chinese consumers’ perceived uncertainty," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 51-70.
    5. Jin, Tao & Kwok, Simon & Zheng, Xin, 2022. "Financial wealth, investment, and confidence in a DSGE model for China," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 114-134.
    6. Zhou, Qian & Shao, Qinglong & Zhang, Xiaoling & Chen, Jie, 2020. "Do housing prices promote total factor productivity? Evidence from spatial panel data models in explaining the mediating role of population density," Land Use Policy, Elsevier, vol. 91(C).
    7. Yin Germaschewski, 2023. "House price volatility in China: Demand versus supply," Economic Inquiry, Western Economic Association International, vol. 61(1), pages 199-220, January.
    8. Chu, Shiou-Yen, 2018. "Macroeconomic policies and housing market in Taiwan," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 404-421.
    9. Shangfa Hou & Jiaying Wang & Degui Zhu, 2022. "Has the Newly Imposed Property Tax Controlled Housing Prices? An Analysis of China’s 2009–2020 Interprovincial Panel Data," Sustainability, MDPI, vol. 14(22), pages 1-18, November.
    10. Minetti, Raoul & Peng, Tao & Jiang, Tao, 2019. "Keeping up with the Zhangs and house price dynamics in China," Journal of Economic Dynamics and Control, Elsevier, vol. 109(C).
    11. Mustafa Ozan Yıldırım & Mehmet İvrendi, 2021. "Turkish Housing Market Dynamics: An Estimated DSGE Model," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 15(2), pages 238-267, May.
    12. Fan He & Meitao Wang & Peng Zhou, 2022. "Evaluation of market risk and resource allocation ability of green credit business by deep learning under internet of things," PLOS ONE, Public Library of Science, vol. 17(4), pages 1-20, April.
    13. Hu, Zhining, 2022. "Six types of government policies and housing prices in China," Economic Modelling, Elsevier, vol. 108(C).
    14. Xiongbin Lin & Ting Ren & Hao Wu & Youzhi Xiao, 2021. "Housing price, talent movement, and innovation output: Evidence from Chinese cities," Review of Development Economics, Wiley Blackwell, vol. 25(1), pages 76-103, February.
    15. Ma, Yong & Lv, Lin, 2022. "Money, debt, and the effects of fiscal stimulus," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 152-178.
    16. Dutra, Tiago Mota & Dias, José Carlos & Teixeira, João C.A., 2022. "Measuring financial cycles: Empirical evidence for Germany, United Kingdom and United States of America," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 599-630.

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    More about this item

    Keywords

    housing prices; business cycle; DSGE; China;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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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