Real Estate Prices On The Effect Of China's Monetary Policy Analysis

Issuing monetary policy is an important way in which government regulates and controls the macro-economy. In recent years, however, the investment in real estate industry accounts for a large proportion in the fixed asset investment nationwide. It's impact on economy can't be ignored. Chinese government has taken frequent measures of monetary policy to control economy, but the result depends on the thoroughness of conduction. The conduction effect of asset prices becomes more distinct with the growth of civil investment. As the major asset of most families, real estate naturally brings the public's attention in its conduction effect on national economy. Then how much does the real estate pricing affect the conduction of controlling policy in national economy? How much does the price of real estate affect the consumption and investment? Our opinions on the answer to these questions become more and more important.The conduction process of monetary policy in this thesis is divided into three levels, namely (i) from the means of monetary policy to house pricing; (ii) from real estate industry to real economy; (iii)from real economy to the ultimate goal. In the theoretical analysis part, the author illustrates various channels in which policy conducts. In the analysis of the conduction process by real estate pricing, the author focuses on the respective effect of the conduction from the price to real economy and the offset effects of each channel as well. In theoretical analysis, the article makes emphasis on the key effect of expectations of people during the course, especially in non-efficient market and semi-efficient market. No matter it's rational or not, once it forms, it brings great impact on the market or even becomes the determining factor.Based on the real economic data from 2007 to 2009, the illustration part of the thesis forms the VAR model in which the conduction proceeds from monetary policy to real economy with the medium of real estate market. It is believed that the impact of China's monetary policy on the real estate market is quite obvious. The 1st level conduction works quite smoothly. However, the contribution from the real estate market to the real economy is not that obvious and the result of conduction sometimes is not consistent with the ultimate goal of monetary policy. In addition, the illustration part is combined with the results of theoretical analysis. The relationships between the various separate variables have been taken into consideration and it's almost the same as the theoretical conclusion. With particular attention, the author comes up with the finding that (i) the real estate pricing has little impact on consumption and industrial growth and real estate industry is not able to drive the development of other industries probably because of the negative impact of financial crisis; (ii) In the process of controlling real estate prices, it is much more effective to control the amount of currency rather than interest rate. The efficiency of Chinese real estate market is very low.The conclusion of the thesis is drawn on the basis of last three years'economy data, therefore it might not be that accurate in the long run. Besides, since GDP is substituted by industrial added value, it leads to the failure of showing the contributions of real estate pricing to the growth of GDP.