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Capital flows, money supply and property prices: The case of China

Listed author(s):
  • Taguchi, Hiroyuki
  • Tian, Lina

This article examines the interaction among capital flows, money supply and property prices with a focus of Chinese economy by using a vector auto-regression (VAR) estimation as an analytical framework. The key research questions were, first, whether money supply has been determined independently from capital flows, and then which factor, capital flows or money supply, has given a dominant effect on property prices. The contributions of this study are to investigate the impacts on property prices jointly from capital flows as an external factor and from money supply as a domestic factor, and to count on the differences in the trends in property prices of seventy regional cities in China. The main findings through the VAR estimations were as follows. First, domestic money supply has been determined exclusively from external capital flows through the authority’s perfect sterilization of foreign-exchange-market intervention. Second, the main contributor to property prices’ movement has been domestic money supply rather than external capital flows. Third, some deviations of property prices from the trend in money supply were found in big cities and/or coastal advanced cities.

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File URL: https://mpra.ub.uni-muenchen.de/80730/1/MPRA_paper_80730.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 80730.

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Date of creation: Jul 2017
Handle: RePEc:pra:mprapa:80730
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  1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
  2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
  3. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2006. "Bubbles and capital flow volatility: Causes and risk management," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 35-53, January.
  4. repec:cii:cepiei:2015-q1-141-1 is not listed on IDEAS
  5. Soyoung Kim & Doo Yong Yang, 2009. "Do Capital Inflows Matter to Asset Prices? The Case of Korea ," Asian Economic Journal, East Asian Economic Association, vol. 23(3), pages 323-348, 09.
  6. repec:cii:cepiie:2015-q1-141-10 is not listed on IDEAS
  7. Soyoung Kim & Doo Yang, 2011. "The Impact of Capital Inflows on Asset Prices in Emerging Asian Economies: Is Too Much Money Chasing Too Little Good?," Open Economies Review, Springer, vol. 22(2), pages 293-315, April.
  8. Alok Bhargava, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 369-384.
  9. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  10. Hiroyuki Taguchi & Pravakar Sahoo & Geethanjali Nataraj, 2015. "Capital flows and asset prices: Empirical evidence from emerging and developing economies," International Economics, CEPII research center, issue 141, pages 1-14.
  11. Koivu, Tuuli, 2012. "Monetary policy, asset prices and consumption in China," Economic Systems, Elsevier, vol. 36(2), pages 307-325.
  12. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  13. Shujie Yao & Dan Luo & Lixia Loh, 2013. "On China's monetary policy and asset prices," Applied Financial Economics, Taylor & Francis Journals, vol. 23(5), pages 377-392, March.
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