Study On Monetary Transmission Mechanism Through Real Estate Market

Study on monetary policy focuses on the monetary transmission mechanism (MTM). In recent decades, volatility of asset prices, as the development of assets market, has been an important factor in macroeconomic fluctuations. Economists and monetary policy makers pay more and more attention to the role of asset prices in the MTM. Present studies are mainly on stocks, bonds and foreign exchange assets but not too much on real estate market.Since the reform of housing commercialization in 1998, China's real estate market has a chronic prosperity with increasing trade and price. The development of real estate market not only creates a new transmission channel of monetary policy but also makes the MTM more complex and monetary policy more difficult to be carried out. As a result, it's very important to conduct the study on the role and transmission efficiency of real estate market in the MTM. It can not only help us to judge how the real estate market will perform under a background of moderate loose monetary policy but also help policy makers to work efficiently to maintain the stability and development of our community.To solve the problem referred previously, this paper firstly constructs a theoretical analysis frame of MTM through the real estate market which has two stages. The first stage is from monetary policy variables related to real estate price and the second one is from real estate price to consumption and investment. Secondly, this paper will set up a VAR model based on the monthly data from January 2000 to December 2009, then econometrics methods, such as Johansen cointegration test, Granger causality tests, impulse response function and variance decomposition, will be used to test whether this channel is efficient or not.The result shows that: There is a long-run equilibrium relationship among monetary policy, real estate price and entity economy; the rise of real estate price lead to the increase of investment and the decrease of consumption of private sector. As a result, the composition of investment and consumption will change.To solve such problems, this paper gives some proposes including improving the regulation system of monetary policy and perfecting China's real estate market. These proposals have some specific value for reference to promote real estate market's development and monetary policy's enforcement.