Housing Market And China's Money Supply Mechanism

Accompanied by the fast-rising house price all over the world, ever-expanding scale of home mortgage loans and persistent increasing proportion of investment in the housing market, housing market has already been an important part of world economic system. So far, the academic research on the housing market has become quite mature. Most of the existing literature mainly focused on the relationship between housing market and economic fluctuation, while rarely mentioned the reaction between housing market and money supply mechanism.In this paper real estate was set to be a requisite as collateral for loans. In this way, we introduce housing market into the DSGE model. With the quarterly data, Kalman filter, likelihood ratio test, impulse response analysis, simulating and policy analysis were used to investigate the impacts of shocks coming from housing market on China's economy and further discuss the reaction between housing market and money supply mechanism in China. The findings are as follows,the persistence of the shocks coming from housing market are stronger than the other shocks mentioned in this paper; current money supply mechanism of China has a counter cycle response to this and last term's house price, total output and inflation; the value of down payment ratio of the housing market can significantly affect the macro-control effect of monetary policy towards consumption, house price and total output. However, by comparing the policy frontiers of different kinds of money supply mechanism, we find that the current response of money supply mechanism to house price couldn't improve the effect of monetary policy in stabilizing total output and inflation rate. So when the government treat maintaining the economic condition as its main goal, the money supply mechanism's response to house price would not be that necessary.