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A comparison of two housing markets

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  • Zhengxun Tan
  • Shu Wu

Abstract

China is experiencing rapid increases in house prices similar in magnitude to that observed in the US housing market bubble. We use a simple vector autoregression model (VAR) to compare housing market dynamics in these two countries. We find that the US housing market responds very strongly to interest rate shocks and very little to money supply shocks. In contrast, the Chinese housing market responds strongly to both interest rate and money supply shocks. An inflation shock produces a larger response of house prices in China than in the US, and changes in house prices have a much stronger wealth effect in China than in the US. A major decline of house prices in China is likely to have a much bigger impact on the Chinese economy. Monetary policy in China needs to reply on both interest rate and quantitative measures to curb unsustainable increases in house prices.

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  • Zhengxun Tan & Shu Wu, 2014. "A comparison of two housing markets," Applied Economics Letters, Taylor & Francis Journals, vol. 21(2), pages 118-124, January.
    • Handle: RePEc:taf:apeclt:v:21:y:2014:i:2:p:118-124
    DOI: 10.1080/13504851.2013.842633
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    References listed on IDEAS

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    1. Bjørnland, Hilde C. & Jacobsen, Dag Henning, 2010. "The role of house prices in the monetary policy transmission mechanism in small open economies," Journal of Financial Stability, Elsevier, vol. 6(4), pages 218-229, December.
    2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    3. Musso, Alberto & Neri, Stefano & Stracca, Livio, 2011. "Housing, consumption and monetary policy: How different are the US and the euro area?," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3019-3041, November.
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    1. Xu Zhang & Xiaoxing Liu & Jianqin Hang & Dengbao Yao & Guangping Shi, 2016. "Do Urban Rail Transit Facilities Affect Housing Prices? Evidence from China," Sustainability, MDPI, vol. 8(4), pages 1-14, April.
    2. Shengguo Li & Jiaqi Liu & Jichang Dong & Xuerong Li, 2021. "20 Years of Research on Real Estate Bubbles, Risk and Exuberance: A Bibliometric Analysis," Sustainability, MDPI, vol. 13(17), pages 1-24, August.

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