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Monetary Policy, Hot Money and Housing Price Growth across Chinese Cities

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  • Xiaoyu Huang
  • Tao Jin
  • Ji Zhang

Abstract

We use a dynamic hierarchical factor model to identify the national, regional, and local factors of the city-level housing price growth in China from 2005 to 2014. We find that city-specific factors account for a large proportion of the variations in city-level housing price growth for most cities. However, the national factor also plays an important role in explaining the fluctuations of city-level housing price growth rates especially after 2009---the average explaining power of the national factor for housing price growth fluctuations reaches 18%. We use a VAR model to investigate the driving forces of the national factor and find that unexpected PBoC policy and hot money flow changes can affect the national housing prices significantly. A positive monetary policy shock has a significant negative impact on the national factor, which lasts for more than two years. Meanwhile, a positive hot money shock does cause a significant increase in the national factor. However, this effect is relatively transitory and reverses in half a year. Monetary policy also affects the national factor by responding positively to positive hot money and price shocks---the reversed effect of hot money shocks and the negative impact of positive price shocks on the national factor result from the tightening of monetary policy triggered by these shocks.

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  • Xiaoyu Huang & Tao Jin & Ji Zhang, 2017. "Monetary Policy, Hot Money and Housing Price Growth across Chinese Cities," Working Paper 509596, Harvard University OpenScholar.
  • Handle: RePEc:qsh:wpaper:509596
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    File URL: http://scholar.harvard.edu/tjin/node/509596
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