An Empirical Study On The Relationship Between Real Estate Bubble And Inflation In China

The housing bubble would seriously affect the stability of the financial system and thenormal development of social economy. Vicious inflation will not only undermine the stablesocial economy development, but also the social stability. In recent years, with the rapiddevelopment of the real estate market in China, real estate price soared up; Meanwhile,China’s price level has been rising steadily, leading to a higher inflation expectation. Thegovernment adopted a series of macro-control policy to fight against the persistent rise ofhouse price and price level, for fear of severe real estate bubble and inflation.Based on the research of China and abroad, first of all, this paper analysis therelationship of real estate bubble and inflation from the theoretical, and then with thecombination of theoretical and empirical analysis, the author study of present situation ofChina’s real estate bubble and inflation, examines the long-term equilibrium relationship andshort-term wave interaction between China’s real estate bubble and inflation by using a VARmodel. According to actual situation in China, this paper draw lessons from the debt crisis ofEurope and the United States, and gives some policy suggestions to preventing China’s realestate bubble and inflation.This paper consists of six parts. The first chapter is the introduction; I expound thebackground and significance of selected topic, domestic and international literature review,ideas and methods in research and innovation points. In the second part, I consider therelationship between real estate bubble and inflation, the paper analysis of that the real estateprice fluctuations have an impact on inflation, through the wealth effect, Tobin’s Q effect andthe effect of financial accelerator to influence investment and consumption. Inflationinfluences the index of real estate bubble by affecting the demand and supply of real estatemarket. Then the paper reveals the pathway of the interaction between real estate prices andinflation and the common cause is excess liquidity. The third chapter draws the conclusionwith the relationship between real estate bubble and inflation which happened in Americansubprime mortgage crisis and the European debt crisis primarily, the phenomenon of realestate bubble economy appeared in both two crises, and led to greater financial crisis orsovereignty debt crisis. Investigate its germ is the excess liquidity of the currency’s sake. Inthis chapter, also analyzed what we can learn from the two international cases. The forthchapter analysis on the current situation and reason of China’s real estate bubble and inflation. The fifth chapter is the empirical analysis, I analyzes the relationship of real estate bubblecoefficient and inflation with VAR model, points out that the expansion of the real estatebubble and inflation’s rise are positive correlation in short and long terms, the result showsthat China’s real estate bubble and inflation have long term equilibrium relationshipsignificantly, but in the short term, the real estate bubble have a limited positive effect to theprice level. Finally, according to the combination of theoretical analysis and empiricalanalysis, and the actual situation in our country, the article gives some related policysuggestion about preventing the real estate foam and the inflation.