An Empirical Study On The Validity Of China’s Interest Rate Policy Regulates On Real Estate Prices

The real estate industry is the pillar industry. It has an important impact on the national economy. House isn’t just consumer goods but also investment goods, many people purchase house to store of value. In order to boost economy, government implement easy credit policy, but this is a big hidden, inflationary pressure is a huge threat to the smooth running of the whole economy.After commercialization reform, housing price rises rapidly, it is out of people affordability. In response to the problems caused by rising house prices, government use interest rate policy to control the real estate market, to maintain social stability. But government failed to control the rapid rise in house prices.According the western classical economic theory, asset prices and interest rates is inverse relationship. A country’s aggregate demand function consists four parts, including consumer demand, investment demand, net exports and government spending. Investment demand and interest rate policy are inverse relationship. Decline interest rates can increase investment, leading to promote the growth of the economy. Thus economy is booming, but this prosperity may be morbid. Governments often choose lower interest rates to encourage investment, to realize the goal of economic growth. Interest rate policy is an important means of government regulates on the economy.Interest rate policy influence asset prices in two ways:first, the portfolio effect; second, the credit. Watch currency as an asset, investors choose different portfolio according to their own situation, to maximize their own gains. Central Bank’s monetary policy can affect people to choose different asset. If central bank implement a tightening of monetary policy, the quantity of money will decrease, corresponding monetary asset yields will rise. In order to maximize their own interests, investors will re-adjust their portfolio, increase the monetary assets and reduce the number of other assets. A result is the rise demand for monetary assets, decline in demand of real estate. It will promote the decline in real estate prices. Credit access the asset is a special commodity, its price is expensive. Consumers and investors can’t afford the huge capital requirements, they need bank loans. By adjusting the credit policy can influence the development of the real estate industry.However, China’s real estate market did not follow the general laws of the interest rates and asset prices. Central bank failed to control the rapid rise of house prices, the effect of regulation is not obvious. How to make the real estate industry and social harmonious development, how to suppress excessive real estate prices, they are very prominent problem. I hope this thesis can provide some useful basis for solving this problem. This paper uses SVAR model to inspect the effective of interest rate policy control on real estate prices. The empirical results show that following positive interest rate shock, the real estate prices rise.According to western economic theory, the tightening of interest rate policy should produce a negative impact on real estate prices. But in our country it showed a positive impact, this is contrary to economic theory. This paper argues that the low level of interest rate market-oriented, urbanization, lack of investment channels and traditional culture of hate to move are the causes of this peculiar phenomenon. The low level of interest rate market lead to failure of the interest rate adjustment mechanism, it can’t guide the flow of funds. Lack of investment channels, people purchase house in order to store of value. Along the rapid advance of the urbanization, the urban population will continue to increase. Traditional culture of hate to move still has a huge influence in today. Owning a house is the target of a lot of people...