The Chinese Housing Boom and Monetary Policy

Abstract

The aim of this thesis The Chinese Housing Boom and Monetary Policy is to study the relationship between the Chinese housing boom and monetary policy for the past two decades in a systematic way. The thesis is composed of eight chapters. Chapter 1 is introductory and Chapter 2 reviews relevant literatures. Chapter 3 describes the background knowledge of the realities of the Chinese economy and summarizes the market failures in the Chinese housing sector as well as provides an in-depth analysis of three issues related to policy intervention in Chinese housing market based on the Rudebusch’s Decision Tree (2005). Based on the Arestis and Karakitsos (2010) contribution for the analysis of the determinants of house prices, Chapter 4 builds a theoretical framework by analysing the role of each type of economic agents plays in accounting for the house price determination in the case of China. Moreover, the associated variables that affect both the demand for and the supply of housing in China are included. Specifically, the motivation and behaviour of local governments, housing purchasers, commercial banks, property developers, and the central bank are considered. Chapters 5 and 6 present the results of empirical studies. Chapter 5 investigates a structural breakpoint using time series data at a national level with a vector autoregression model and a chow test. Chapter 6 investigates the house price determinants with city-level panel data. Both empirics support the hypotheses made in the theoretical framework. Chapter 7 provides an extensive discussion of the role of money supply in the breakpoint analysis and the four determinants and link these factors to explain the housing boom in China. Chapter 8 concludes that the main aim of the thesis is accomplished; it also concludes that policy focus should change from the demand side to the supply side.