Empirical Research On The Impact Of Real Estate Cycle On Financial Stability In China

With the reform of China's housing system, China's real estate industry has made a great development, and it has formed real estate fever. At the same time, real estate industry has become a pillar industry of China's economic development. The importance of real estate industry in the entire financial system has been continuously rising, and the increasing influence of the real estate industry has become a new source of profit for the financial industry. As China's financial structure dominated by indirect financing, the main channel of corporate finance for China's real estate is bank credit, that is, the real estate market highly depend on the banking system, and the risk of fluctuations in the real estate cycle is highly concentrated in banking. The relationship of the financial industry and the real estate industry is increasingly close;the impact of fluctuations of real estate cycle on the financial stability has gradually increased.Taking substantial financial risks of the banking system is the actual situation in our country. Deepening the reform of China's financial industry is in a stage, and the mechanisms have not yet perfect, so dealing with the relationship between real estate cycle and financial stability is a serious problem. This paper is based on this reason, attempts to explore the impact of the real estate cycle on financial stability.There are five chapters in the paper. The contents are as follows:Fist chapter is introduction. Firstly, it provides research background and significance. Secondly, it briefly states research ideas and literature reviews of the real estate cycle, financial stability and their relationship.Last, it explains innovative ideas and inadequate about my paper.Second chapter is theoretical analysis.First of all, it introduces the concept of the real estate cycle and financial stability, index, and then analyses impact of the real estate cycle on financial stability, which is the theory foundation of our research. On the one hand, it states clearly that the development of the financial industry is bound to rely on the real economy, and the expansion of real estate market will drive the expansion of the scale of real estate finance business, and real estate market will lead the development of financial innovation; on the other hand, it points out the problem of credit exposure on China's real estate.Third chapter is establishment of financial stability index system. This paper constructs measurement indicator system from two aspects:micro-prudential indicators of macroeconomic indicators, which presented under the IMF's FSI system, in combination with other references and the case of collecting data. The system covers macroeconomics, banking, insurance, real estate, enterprise and household sector 6 aspects. This paper briefly overviews the basic idea of AHP and steps of Index assignment.Fourth chapter is empirical analysis. This paper introduces general situation of the real estate cycle and financial stability, and then calculates financial stability index by AHP, finally this paper uses the real estate cycle index and financial stability index to establish the VAR model, variance decomposition. The result shows that:First, commodity sales area growth rate impacts financial stability index to a certain extent, and this affects a certain lag, the maximum lag is 2;Second, carryover effects in phrase 2 are positive, that is, the two indicators change in the same direction. Third, the degree of contribution of commodity sales area growth rate to financial stability index gradually increases, and both indicators are in the relatively stable in phrase 3 and 4.Fifth chapter is policy suggestions. It provides measures and suggestions which prevent the crisis of fluctuations in the real estate cycle from financial stability. In order to reduce the harm of fluctuations in the real estate cycle to financial stability, first of all, we should attach importance to the fluctuations in the real estate cycle and strengthen warning mechanisms for reacting in advance and taking effective measures as for the condition of real estate;secondly, we should broaden the channels for real estate financing, and establish diversified real estate financial system in order to spread the risk.In this paper, the study of the impact of real estate cycle on financial stability not only learn from and inherit their predecessors outstanding research results, but also has a certain innovations, of course, may also have some shortcomings.In this study, the indicator of financial stability is not single indicator but composite index which is computed by AHP. In the meantime, empirical studies this paper used a variety of econometric methods to conduct empirical research. Because the financial stability index system covers lots of indicators and the author's financial theory and data collection capabilities are limited, there are many deficiencies. Some of the results of this paper to be further discussed and validated.In a serious scientific spirit, these issues will continue in future research are discussed and analyzed.