Measuring Residential Market Uncertainty In China

Since 2008,the global economy has been continuously impacted by the Black Swans,such as the subprime crisis,while a fruitful emerging literature has focused on measuring uncertainty and analyzing its impact.Specially,residential market uncertainty can be defined as the unpredictable part of future residential market activities.In view of the importance of the real estate market to China's economy and the leading role of the residential market in the real estate market,this paper will construct a residential market uncertainty index(RU)from June 2002 to June 2019 based on the method of Jurado et al.(2015),which exploits a data rich environment to provide direct estimates of time-varying uncertainty,to study the characteristics of the uncertainty of residential market and its impact.Specifically,this paper form information set from 221 series and estimate the conditional volatility of the forecast errors of 47 residential market series.The RU is computed by calculating a weighted average across the 47 indicators mentioned above.This paper also build the China macroeconomic uncertainty index(CMU)and China financial uncertainty index(CFU)used the same method but formed the information set and calculated the conditional volatility of the forecast errors from different series to discuss the differences among them.Lastly,a VAR model will be used to explore what impact the uncertainty will have on the residential market.It is found that,while the prediction interval increase,the value of RU rise but the curve becomes flatter.This because things are harder to predict the further out the forecast period,and the impact of uncertainty is easier to digest in the long run.There were frequent and significant fluctuations of RU during 2007-2009 and 2015-2016.According to the impulse response results,the increase of RU has a negative impact on the residential market,especially on the end of the market supply.The variance decomposition results show that grasping the characteristics of uncertainty is beneficial to the trend of the market,the uncertainty may be the key factor of decision-making of real estate development companies.Lastly,compared with CMU and CFU,RU has a more significant impact on the housing market,that is,RU is a better proxy for measuring uncertainty of residential market.The conclusions mentioned above suggest that market entities and governments can find out the cycle in which the housing market base on the RU.Governments can also timely take some counter-cyclical policies to stabilize the market and reduce the adverse impact of uncertainty through policy communications.