RMB Exchange Rate,Capital Flows And Regional House Prices

As the most significant asset in the balance sheet of Chinese individuals,the price of housing properties has increased rapidly in the past decades and fluctuated frequently at the same time with the impact of regulation policies from the authorities.Therefore,it is worthwhile to investigate the influential factors of house prices,which would be useful in establishing the long-run stability mechanism of domestic house prices.Based on the existing researches,we mainly consider the international influential factors of house prices and manage to investigate the casual relationship between exchange rate and regional house prices in China with the regional panel data from 2000-2016.Firstly,the potential mechanism of how exchange rate could influence the house prices is proposed based on the related theories.Then,the fixed effect model with panel data both in regional level is utilized in the empirical study.The results indicate that the increase of real effective exchange rate would result in the rise of house prices via international capital inflow channel.Moreover,this effect is related to the regional capital openness level and the first-tier cities suffer most from the impact.Then,the DID identification with the exogenous shock of exchange rate regime reform in 2005 is utilized to solve the endogeneity and prove the causality between exchange rate and house price.Finally,we conduct the robustness test to prove the reliability of empirical results.It concludes that the appreciation of RMB could lead to the increase of house prices in China during past decades but this effect is lower than expected,the aggregate effect is limited while the structural effect is more significant.However,with the expansion of China's opening to the outside world,the acceleration of RMB's internationalization and the loosening restricts of foreign capital in the real estate market,foreign capital would flow more frequently in real estate market under the variations of exchange rate.Hence,we propose some suggestions for the authorities in maintaining the stability of domestic financial system and establishing the long-run stability mechanisms in real estate market.