The Spillover Effect of Chinese Monetary Policy on Real Estate Prices: Based on TVP-VAR Model
Authors:   Asia-Europe Perspective Association, Wang Hongyang , Lee Ki-Seong 
Published: December 2024

Since the reform and opening up, the Chinese economy has entered a stage of rapid development and people’s demand for housing has also risen in tandem. In particular, the real estate market has grown rapidly since the reform of the housing welfare system in 1998. In 2003, the real estate industry became the pillar industry of Chinese economic development and the real estate price rose quickly as it was driving the economy. The Monetary Authority has macroscopically controlled the real estate price for nearly 20 years since 2001, but the housing price still maintains a high-speed growth, and the irrational growth brings the housing price bubble, which is extremely unfavorable to the stable development of Chinese economy. Since the financial crisis, the government has called for tougher and better regulation of house prices. Monetary policy is the most common macro-control means. Monetary authorities generally use such tools as money supply, interest rates and exchange rates to control housing prices. However, how to control housing prices according to monetary policy and stabilize the outlook for housing prices are issues that need to be solved urgently. Therefore, it is important to explore the impact relationship of monetary policy on real estate prices.
This paper sorts out the development process of Chinese monetary policy and real estate market over the past 20 years and makes qualitative analysis of the adjustment process of monetary policy. Relevant analysis showed that in the sample interval, money supply M2 showed positive (+) correlation with housing price broadly, while interest rate showed negative (-) correlation with housing price. Then this paper builds a time-varying parameter vector autoregression (TVP-VAR) model by selecting money supply, short-term interest rate and average selling house price (EP) as indicators based on national macro-monthly data from 2001 to 2022. Select a specific time point to analyze the impact of different types of monetary policies on housing prices from the perspective of evenly spaced shocks.
The following results can be obtained through the analysis of the equidistant shock response. Firstly, the conclusion is obtained that the effects of quantity-based (direct) instrument and price-based (indirect) instrument on housing prices are both time-varying characteristics and large in asymmetry. The trend and degree of impact on housing prices before and after the financial crisis are different, and the two regulatory effects vary greatly depending on the timing of the monetary policy, so the regulatory effect of the monetary policy easing is greater. Second, in the short-term, both quantity-based (direct) instrument and price-based (indirect) instrument have a marked impact on the housing price, and in the long-term, both have a weak control effect on the housing price, the money supply quantity has a positive impact on the housing price, and the interest rate has a negative impact on the housing price. Thirdly, brother monetary and price quantity, looking at the results from lateral comparison with monetary policy, monetary policy than monetary quantity diabetes housing price bigger impact on money supply, interest rate market progresses, housing prices lowered sensitivity of higher sensitivity on interest rates as the empirical appeared.