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Is housing collateral important to the business cycle? Evidence from China

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  • Gai, Yue
  • Minford, Patrick
  • Ou, Zhirong

Abstract

This paper investigates whether housing collateral is important to the business cycle in China. We develop two models, one without housing collateral as benchmark and one variant allowing for it. Indirect Inference procedure tests these two models’ compatibility with the data. We find that the benchmark model passes the test, while the collateral model is strongly rejected. According to the benchmark model, shocks from the housing market have limited impact on the Chinese business cycle. By contrast, the exogenous spending shock from government and net exports, the monetary policy shock and the goods-sector cost/productivity shock, all in turn most likely connected to world business cycle shocks (especially the global financial crisis), are found to be the main drivers.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:jimfin:v:109:y:2020:i:c:s0261560620301728
    DOI: 10.1016/j.jimonfin.2020.102216
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    Cited by:

    1. Yun Liu, 2022. "Housing and monetary policy: Fresh evidence from China," Financial Economics Letters, Anser Press, vol. 1(1), pages 1-12, December.
    2. 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).
    3. Hessou, Hélyoth T.S. & Lensink, Robert & Soumaré, Issouf & Tchakoute Tchuigoua, Hubert, 2021. "Provisioning over the business cycle: Some insights from the microfinance industry," International Review of Financial Analysis, Elsevier, vol. 77(C).
    4. Adalessossi, Kokou, 2024. "What are the determinants of the financial and social performance of MFIs in Togo? Does gender borrower matter on financial performance?," Finance Research Letters, Elsevier, vol. 62(PA).
    5. Kenneth Rogoff & Yuanchen Yang, 2021. "Has China's Housing Production Peaked?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(1), pages 1-31, January.
    6. Serrano-Cinca, Carlos & Cuellar-Fernández, Beatriz & Fuertes-Callén, Yolanda, 2023. "Pathways to self-sufficiency in the microfinance ecosystem," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 262-273.

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    More about this item

    Keywords

    Housing market; DSGE model; Housing collateral; Indirect inference; China;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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