Can Monetary Policy Target on Asset Price? — Evidence from Chinese Real Estate Market

Based on the BEKK model and the GARCH mean-value equation model, this paper analyzes the volatility correlations among real estate price, money supply and economic growth, and examines the impact of various volatilities on economic growth. It has been found out that the volatility of real estate price and the co-volatility between real estate price and money supply have significant impacts on GDP growth rate, and furthermore lead to decline of GDP growth rate. The volatility of real estate price growth rate does not significantly affect economic growth rate volatility, while the co-volatility between money supply and real estate price changes sharply, and the co-volatility between real estate growth rate and economic growth rate does not show significant influence on economic growth rate's volatility. The conclusion is that the volatility of real estate price should be controlled, but currently it is not necessary for the central bank to directly target on real estate price.With the breakout of sub-prime loan crisis and the bursting of real estate price bubble, global economy goes to severe recession, and the research on relationship between asset price and monetary policy has become a hot issue. More and more central banks are recognizing the influences of asset price on inflation and economic growth.1 There is no doubt that the real estate price and the bursting of price “bubble” have a far-reaching implication on the monetary policy during the financial crisis.