The Research On Interaction Between RMB Exchange Rate And Real Estate Prices

Along with the trend of global economic integration, China has become thedeveloping countries attracting the most foreign capital for16consecutive years, dueto the RMB appreciation and its appreciation expectation. The real estate industry,absorbing the second most foreign capital behind only manufacturing industry, hasseen increasing foreign capital participation. On the one hand, short-term speculativecapital flows, and the monetization of RMB appreciation pressure hasbeen inundated with liquidity in China’s real estate market and the increasingdifficulties in national price control policies. On the other hand, accompanied withrising real estate prices and the pressure of RMB appreciation, serious internal andexternal economic imbalances is happening in China. The expected appreciation ofRMB has constrained the room for maneuver of the interest rates and other policyvariables, thus making China’s macro-control policy an inner dialectic of stabilizationbetween RMB exchange rate and real estate prices. Under this background, the papertries to explore linkage channels of the RMB exchange rate and real estate prices, aswell as the relative scale of each channel. This will help to effectively seize keyintermediate variables, and will provide us new ideas to weaken the RMB exchangerate and real estate prices spiraling cycle, and ease the inner contradiction of RMBexchange rate stability and real estate prices stability.This paper reviews and summarizes the research of scholars about the impact onreal estate prices exerted by exchange rate and the impact on the opposite direction.This paper builds a comprehensive framework for theoretical analysis of interactionbetween RMB exchange rate and real estate prices, and summarizes it to three mainchannels: the international capital flow channel, the domestic money supply channeland the economic growth channel. Based on it, this paper then theoretically analyzedthe mechanism of these three channels. Finally, empirical analysis on generalinteraction between RMB exchange rate and real estate prices, and on each channelsis adopted to further reveal the relative role of the three channels. On the basis of theoretical and empirical analysis above, this paper concludesthat:1. In the short run, RMB exchange rate impacts real estate prices mainly byinternational capital flow channel; In the long run, RMB exchange rate changesimpact have a relatively stable currency supply effect. Surplus flexibility caused bythis effect affects the real estate market the most;2. The impact on RMB exchangerate exerted by real estate prices is maily through money supply expansion, while thetwo other channels are not significant;3. The key point of the regulation of real estateprices lies in enhancing the independency of money policy and weakening theconduction from RMB exchange rate to real estate prices through money supply.