Rearch On Effect Of House Price On Monetary Policy Transmission

Monetary policy Practice always changes with the change of economic conditions. In a new environment of monetary policy implementation, the central banks have quite successfully controlled the general price level,but on the other hand, inflation pressure is increasingly transferring to the asset field,such as stock,real estate.The asset price volatility may bring about financial instability and even cause serious economic recession. Asset price fluctuation has challenged monetary policy greatly. Early in1994, Greenspan proposed that central banks should pay more attention to asset price bubble,which led to a hot discussion if the central bank should interfere in asset price. In2005,the European Central Bank president Trichet also pointed out that the relationship between asset price bubbles and monetary policy has become one of the biggest challenges for the central bank the in the21st century.In recent years,House price has been rising although more and more critical monetary policy has been implemented. The constantly rising house price has greatly changed the traditional monetary policy transmission mechanism more and more,it also make brings monetary policy new great challenges. Against this background,this dissertation focuses on monetary policy transmission course of house price,systematically studying the monetary policy effect how monetary policy affects house price and how house price affects monetary policy targets,forming a complete systematic study of monetary policy transmission effect of house price.Firstly,the dissertation describes the research background and research significance,then defines some related conceptions,and establishes the framework for this study. Through a systematic literature review about the study topic,the study foundation and direction is determined,some innovation breakthrough points are also found.After determining the study basis and direction,the dissertation studies the problem of the mechanism of how monetary policy affects house price, respectively from the micro-mechanism and macro-control perspectives. By building an individual inter-temporal choice model and using a constrained maximization effect principle,the dissertation derives four determinants of the decision for house purchase time; Then furtherly by changing the initial time of the continuous-time time optimization problem and the initial down payment requirements, a short-term house price dynamic analysis is conducted. Based on a micro research, the conclusion is that a short-term financial stimulus on house market may stimulate house price, but it also increases the risk of house price fluctuations, which may lead to financial instability; Based on a macro research on the effectiveness of monetary policy on house price control, the conclusion is that house price rise are largely due to money supply, but interest rate does not have an obvious effect on house prices due to the interest rate boundary conditions. The empirical tests by SVAR model and parallel provincial panel data model also support the conclusions above.Money supply and money demand is the axis of macro-economic, which has an important impact on price, output and financial stability. Chapter5distinguishes the transaction money demand into real economy transaction demand and financial asset transaction demand, and gets a new money demand equation by adding the stock price and house price transaction demand to the traditional money demand equation. By this way, a gross money velocity can be obtained, which can explain why money velocity has declined. Empirical tests for house price’s static and dynamic impact on money demand are conducted respectively by the establishment of a co-integration equation and the error correction model; further, a money sediment effect equation is established. The important conclusion is house price has a significant sediment effect on money demand. House price rise brings about great monetary demand, reducing the monetary velocity, which explains the fact why high asset price and low inflation can co-exist.The transmission from house price to monetary ultimate goal includes how house affects price stability, economic growth and financial stability. Chapter6establishes a house prices and common price relationship model, theoretically analyzes the mechanism of the impact of house price on common price, and then empirical tests are conducted by ARDL model in China, and regression model respectively in Japan and the U. S. Theoretical research and empirical tests show that house price contains some common price information, but the relationship between house prices and the common price are not sure, and they may co-exist in different forms, house price rise will not necessarily leads to inflation. Based on economic growth theory, investment theory and the consumer theory, Chapter7studies the problem of economic growth effect of house price. Taking into account the impact of institutional factors, three provincial parallel panel models are established? respectively as total effect model, investment effect model and consumption effect model. The conclusions are as follows:House price rise promotes economic growth with a positive total effect; House price rise stimulates investment demand with a positive investment effect. However, house price rise lowers average consumer willing and dampens consumer demand with a negative consumption effect. Therefore, the house price continous rise is not conducive to China’s economic growth mode transformation and economic restructuring.In order to form a complete system of the monetary policy transmission mechanism of house price, taking full account of the influence of house price on the monetary policy objectives, the paper gives a comprehensive analysis of the relationship among price stability, financial stability and economic stability to determine a correct direction of future monetary policy rule. A three-stage relationship model of house price and the output gap is established, deriving monetary policy intervention in house price rise may lead to deviation from the target output in a short term; but it can eliminate or reduce the accumulation of asset bubbles and prevent systemic financial risk in long term. There is an equilibrium solution between macroeconomic stability and financial stability. So, an appropriate response to house price rise is conducive to both financial stability and economic stability. For the direct financing model in a bank dominated financial market, bank stabilization is the central for financial stability. Price stability and financial stability are not mutually consistent, which is contrary to the traditional views. Asset price rise tends to occur in low price condition, house and other asset price rise often transpire before an overall price rise. Therefore, the central bank must change the single original inflation targeting and add financial stability as one of the monetary policy objective. The central bank can learn from the experience of controlling inflation, put the house price as a most important proxy for financial stability. By this way, the public anticipation of further rise can be changed, which can improve monetary policy transparency and monetary policy effectiveness to control house price. This is the last conclusion, and it is also the question returning to the start of this paper.