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Keeping up with the Zhangs and house price dynamics in China

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  • Minetti, Raoul
  • Peng, Tao
  • Jiang, Tao

Abstract

This paper studies the effect of social interactions on house price dynamics in China. We first present household-level evidence on Chinese households’ tendency to keep up with the home ownership status of their communities (“keep up with the Zhangs”). By means of a dynamic stochastic general equilibrium model, we then study the impact of these housing consumption externalities on housing demand and prices. Our Bayesian estimation and simulation reveal that these externalities significantly increase house prices in the long run (steady state) and amplify their response to shocks. Housing tax policies can mitigate the amplification effects.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:dyncon:v:109:y:2019:i:c:s0165188919301757
    DOI: 10.1016/j.jedc.2019.103778
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Lim, King Yoong & Liu, Chunping & Zhang, Shuonan, 2024. "Optimal central banking policies: Envisioning the post-digital yuan economy with loan prime rate-setting," Emerging Markets Review, Elsevier, vol. 59(C).
    3. 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.
    4. Ge, Xinyu & Li, Xiao-Lin & Li, Yong & Liu, Yan, 2022. "The driving forces of China's business cycles: Evidence from an estimated DSGE model with housing and banking," China Economic Review, Elsevier, vol. 72(C).
    5. Yin Germaschewski, 2022. "House price, credit supply, and government policy in China," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 971-1026, May.
    6. Yin Germaschewski, 2023. "House price volatility in China: Demand versus supply," Economic Inquiry, Western Economic Association International, vol. 61(1), pages 199-220, January.
    7. Chunping Liu & Zhirong Ou, 2022. "Revisiting the determinants of house prices in China’s megacities: Cross‐sectional heterogeneity, interdependencies and spillovers," Manchester School, University of Manchester, vol. 90(3), pages 255-277, June.

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    More about this item

    Keywords

    House prices; Social status concerns; Social multipliers;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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