The Theory And Empirical Research On Housing Price Overshooting Under The Impact Of Money Supply In China

The real estate price of our county has been soaring continuously since financialcrisis.The main reason is that money supply in our country exceeds the quantity of socialeconomy development because of moderately loose monetary policy and many kinds ofpreferential policies from the financial crisis. Much money go from consumption toinvestment, from entity economy to virtual economy. Then with stable monetary policy, theprice of housing begins falling.In the upward adjusted stage of real estate, investment in real estate can get very highreturns and unreasonable tilt of bank and social capital to real estate that aggravatesfinancial risk and social polarization. The production and infrastructure cannot developwell because lack of necessary funds. In the downward stage of real estate, a lot of moneyevacuate from real estate market, the risk of loans related with real estate mortgagethreatens the stability of the financial system. So we should improve and perfect the moneysupply to the real estate market of macro-control, keep the real estate price stability andpromote the orderly development of the real estate market.This article analyses the real estate price increasing on the basis of money supply. Weexplain relations between money supply and real estate price with the help of conventionaland extensional quantity theory of money. Secondly, using sticky price monetary approachwe construct model including commodity market、real estate market and monetary marketwhich is based on the Frankel model to explain the phenomenon of real estate priceovershooting. Thirdly, on the basis of theoretical model, we use the time series dataregarding commodity price, real estate price and money supply in our country, along withthe econometric techniques, such as VAR, VECM model, to check the explanatory powerof our theoretical model. The empirical results show that the quarterly change rate ofmoney supply has more effect on the real estate price than the commodity price. Realestate price adjusts early and responses quickly. The adjust amplitude of real estate pricewill large to get the long-term equilibrium value. This also means that real estate price willovershoot in the process of dynamic adjustment. In the end, we give some relatedsuggestions.