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Empirical Economics

, Volume 53, Issue 2, pp 599–615 | Cite as

The housing market and excess monetary liquidity in China

  • I-Chun Tsai
Article

Abstract

This study investigated the performance of the housing market in China, determining that from a long-term perspective, an equilibrium relationship exists between housing prices and output. However, the housing market may not be efficient in the short run. Based on the correlation between housing returns and the economic growth rate, 3 distinct states can be discerned in the performance of the Chinese housing market. The first state is a bubble period, during which housing returns are excessively high and negatively correlated with the economic growth rate; the second state is a correction period, during which housing prices are corrected toward market fundamentals; and the third state is a calm market period, during which no substantial performance or trends manifest. This study determined that excess monetary liquidity significantly influenced the housing market states; however, no such effect was observed when the interest rate was adjusted. Thus, the findings implicate that if the People’s Bank of China intends to avoid losing control of the housing market, it should exercise monetary control to avoid excess liquidity in the housing market.

Keywords

Chinese housing market Excess liquidity Housing bubble Interest rate Monetary policy 

JEL Classification

E40 E51 R30 

Notes

Acknowledgments

I would like to thank Robert M. Kunst (Coordinating Editor) and the two anonymous referees for the constructive comments of this paper. Funding from the Ministry and Science and Technology of Taiwan under Project No. MOST-104-2410-H-390-028-MY3 has enabled the continuation of this research and the dissemination of these results.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Department of FinanceNational University of KaohsiungKaohsiungTaiwan

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