Monetary Policy, Financing Constraints And Corporate Investment In The Real Estate Industry

The invisible hand theory was questioned when the financial crisis from1929to1933happened. The currency neutral theory of western classical school began to be challenged. After that, there was a fierce debate between different schools. Now, based on a lot of empirical findings, the economists have reached a consensus. Monetary policy is effective in a short term, and is ineffective in a long term. As an important part of our country’s economy, the real estate industry has been a key control target of monetary policy in recent years. But the real estate price continues rising. The price is so high that the effectiveness of monetary policy has been questioned.From the perspective of investment level, we introduce the monetary policy to the model to study the effect of monetary policy on the real estate industry. The results are followed. There is a significant correlation between cash flow and investment in the real estate industry. And the cash flow sensitivity of the higher financing constraints group is higher than that of the low. The monetary policy has a significant impact on the level of investment in the real estate industry. That is to say, the looser monetary policy is, the higher investment level will reach. The monetary policy affects the investment of a company by influencing the financing constraints of it. The looser monetary policy will reduce investment-cash flow sensitivity, and vice versa. Another result is that the significant impact of monetary policy will show after three quarters.This paper is to study the effect of monetary policy and its transmission mechanism. The results provide relevant empirical support to microscopic transmission mechanism of monetary policy, and also enrich the domestic research about financing constraints and investment-cash flow in some way. Meanwhile, the empirical results would provide a reference on the implementation of the monetary policy, and it is useful to investors on capital market. In addition, the paper uses innovatively the total social financing as the measurement of monetary policy. It looks more accurate than other measurements when the financial system is not perfect in our country.