The Effect Of Monetary Policy On Housing Market In China,a Research Based On The Monetary Transmission Theory

As heterogeneity exists inside the economy, the tight or loose monetary policy itself wouldbring in fluctuations to the specific industry in certain degree. The excessive expansion orcontraction of the housing market will lead to the imbalance of aggregate economy and eveneconomic recession. Hence there is a great need to keep a watchful eye on the impact ofmonetary policy on the housing market.The thesis focuses on the dynamic effect of monetary policy on housing market, and analyzethe mainly transmission channel of this influence with instrumental variable estimation andVAR model. The thesis reaches the following conclusions: the expansion of monetary policywould boost the housing investment and price in a short time and this effect will last in thelong run. Consequently, when the monetary authority takes considerably fierce policy meansto regulate the macro-economy, the effect of housing market adjustment policies would becrippled; the transmission channels of monetary policy in housing market, including creditchannel, monetary channel (the research only discusses sub-channels of monetary channel,self-funded channel and exchange rate channel), are both very significant, however monetarychannel is taking a predominant position. Accordingly, the attempt to control the housingprice by credit control will be more and more difficult to achieve with the financial marketreform in China.Then the thesis proposes the following suggestions: when housing price is running in the highlevel, the monetary authority should make a cautiously decision on the expansionary policy.Plus, the relative measures should be taken at the same time to cope with the impact ofmonetary policy. One of the effective ways would be restricting the effect of transmissionchannels in the impact delivering，especially the monetary channel. The research alsoindicates that Chinese authority should not only take economic growth as the main target ofpolicy, and new market regulation system should be build up as soon as possible with thedevelopment of financial market reform.