Empirical Economics

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

The housing market and excess monetary liquidity in China

  • I-Chun Tsai


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.


Chinese housing market Excess liquidity Housing bubble Interest rate Monetary policy 

JEL Classification

E40 E51 R30 



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.


  1. Ahuja A, Cheung L, Han G, Porter N, Zhang W (2010) Are house prices rising too fast in China? IMF working papers 10/274, International Monetary Fund.
  2. Ahuja A, Nabar M (2012) Investment-led growth in China: Global spillovers. IMF working papers 12/267, International Monetary Fund.
  3. Baks K, Kramer C (1999) Global liquidity and asset prices: measurement, implications, and spillovers. IMF working papers 99/168, International Monetary Fund.
  4. Barth JR, Lea M, Li T (2012) China’s housing market: is a bubble about to burst? Milken Institute research reports, Milken Institute.
  5. Belke AS, Orth W (2007) Global excess liquidity and house prices—a VAR analysis for OECD countries. Ruhr economic papers no. 37, Research with Impact.
  6. Black A, Fraser P, Hoesli M (2006) House prices, fundamentals and bubbles. J Bus Finance Account 33:1535–1555. doi: 10.1111/j.1468-5957.2006.00638.x CrossRefGoogle Scholar
  7. Bowden RJ (1980) Equilibrium and disequilibrium in models of the housing market: a survey. National Housing Economics Conference, Australian Government Publishing Service (AGPS)Google Scholar
  8. Bracke P (2013) How long do housing cycles last? A duration analysis for 19 OECD countries. J Hous Econ 22:213–230. doi: 10.1016/j.jhe.2013.06.001 CrossRefGoogle Scholar
  9. Campbell S, Davis M, Gallin J, Martin R (2009) What moves housing markets: a variance decomposition of the rent-price ratio. J Urban Econ 66:90–102. doi: 10.1016/j.jue.2009.06.002 CrossRefGoogle Scholar
  10. Case KE, Shiller RJ (1989) The efficiency of the market for single-family homes. Am Econ Rev 79:125–137.
  11. Chung HS, Kim JH (2004) Housing speculation and housing price bubble in Korea. KDI School of Pub policy and management paper no. 04-06. KDI School.
  12. Clark SP, Coggin TD (2011) Was there a U.S. house price bubble? An econometric analysis using national and regional panel data. Q Rev Econ Finance 51:189–200. doi: 10.1016/j.qref.2010.12.001 CrossRefGoogle Scholar
  13. Clayton J (1998) Further evidence on real estate market efficiency. J Real Estate Res 15:41–57. doi: 10.5555/rees.15.1.l4745676513k672u Google Scholar
  14. Congdon T (2005) Money and asset prices in boom and bust. Institute of Economic Affairs, LondonGoogle Scholar
  15. Dreger C, Zhang Y (2013) Is there a bubble in the Chinese housing market? Urban Pol Res 31:27–39. doi: 10.1080/08111146.2012.711248 CrossRefGoogle Scholar
  16. Engle RF, Granger CWJ (1987) Cointegration and error correction: representation, estimation and testing. Econometrica 55:251–276.
  17. Gilles C, LeRoy SF (1992) Bubbles and charges. Int Econ Rev 33:323–339.
  18. Glaeser EL, Gyourko J, Saiz A (2008) Housing supply and housing bubbles. J Urban Econ 64:198–217. doi: 10.1016/j.jue.2008.07.007 CrossRefGoogle Scholar
  19. Gouteron S, Szpiro D (2005) Excess monetary liquidity and asset prices. Banque de France working paper no. NER-E 131, Banque de France.
  20. Guo S, Li C (2011) Excess liquidity, housing price booms and policy challenges in China. China World Econ 19:76–91. doi: 10.1111/j.1749-124X.2011.01267.x CrossRefGoogle Scholar
  21. Hamilton JD (1989) A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica 57:357–384.
  22. Hou Y (2010) Housing price bubbles in Beijing and Shanghai? A multi-indicator analysis. Int J Hous Market Anal 3:17–37. doi: 10.1108/17538271011027050 CrossRefGoogle Scholar
  23. Huang M-C (2014) Bubble-like housing boom-bust cycles: evidence from the predictive power of households’ expectations. Q Rev Econ Finance 54:2–16. doi: 10.1016/j.qref.2013.10.007 CrossRefGoogle Scholar
  24. Hui ECM, Yue S (2006) Housing price bubbles in Hong Kong, Beijing and Shanghai: a comparative study. J Real Estate Finance Econ 33:299–327. doi: 10.1007/s11146-006-0335-2 CrossRefGoogle Scholar
  25. Hui ECM, Gu Q (2009) Study of Guangzhou house price bubble based on statespace model. Int J Strateg Prop Manag 13:287–298. doi: 10.3846/1648-715X.2009.13.287-298 CrossRefGoogle Scholar
  26. International Monetary Fund (2011) Global financial stability report, world economic and financial surveys (Washington, April)Google Scholar
  27. International Monetary Fund (2012) World economic outlook, world economic and financial surveys (Washington, October)Google Scholar
  28. Koivu T (2012) Monetary policy, asset prices and consumption in China. Econ syst 36:307–325. doi: 10.1016/j.ecosys.2011.07.001 CrossRefGoogle Scholar
  29. Lai RN, Order R (2006) A regime shift model of the recent housing bubble in the United States. Ross School of Business Paper no. 1084, Ross School of Business.
  30. Liang Q, Cao H (2007) Property prices and bank lending in China. J Asian Econ 18:63–75. doi: 10.1016/j.asieco.2006.12.013 CrossRefGoogle Scholar
  31. Malpezzi S (1990) Urban housing and financial markets: some international comparisons. Urban Stud 27:971–1022.
  32. Malpezzi S (1999) A simple error correction model of house prices. J Hous Econ 8:27–62. doi: 10.1006/jhec.1999.0240 CrossRefGoogle Scholar
  33. McDonald J, Stokes H (2013) Monetary policy and the housing bubble. J Real Estate Finance Econ 46:437–451. doi: 10.1007/s11146-011-9329-9 CrossRefGoogle Scholar
  34. Meltzer AH (1995) Monetary, credit and (other) transmission processes: a monetarist perspective. J Econ Perspect 9:49–72. doi: 10.1257/jep.9.4.49 CrossRefGoogle Scholar
  35. Mikhed V, Zemčík P (2009) Testing for bubbles in housing markets: a panel data approach. J Real Estate Finance Econ 38:366–386. doi: 10.1007/s11146-007-9090-2 CrossRefGoogle Scholar
  36. Nneji O, Brooks C, Ward CW (2013) House price dynamics and their reaction to macroeconomic changes. Econ Model 32:172–178. doi: 10.1016/j.econmod.2013.02.007 CrossRefGoogle Scholar
  37. Ren Y, Xiong C, Yuan Y (2012) House price bubbles in China. China Econ Rev 23:786–800. doi: 10.1016/j.chieco.2012.04.001 CrossRefGoogle Scholar
  38. Scherbina A, Schlusche B (2014) Asset price bubbles: a survey. Quant Finance 14:589–604. doi: 10.1080/14697688.2012.755266 CrossRefGoogle Scholar
  39. Shih Y-N, Li H-C, Qin B (2014) Housing price bubbles and inter-provincial spillover: evidence from China. Habitat Int 43:142–151. doi: 10.1016/j.habitatint.2014.02.008 CrossRefGoogle Scholar
  40. Stiglitz J (1990) Symposium on bubbles. J Econ Perspect 4:13–18. doi: 10.1257/jep.4.2.13 CrossRefGoogle Scholar
  41. Tsai I-C (2015) Monetary liquidity and the bubbles in the U.S. housing market. Int J Strat Prop Manag 19:1–12. doi: 10.3846/1648715X.2014.973465 CrossRefGoogle Scholar
  42. Wang Z, Zhang Q (2014) Fundamental factors in the housing markets of China. J Hous Econ 25:53–61. doi: 10.1016/j.jhe.2014.04.001 CrossRefGoogle Scholar
  43. Whitehead C (1971) A model of the UK housing market. Bull Oxf Univ Inst Econ Stat 33:245–266. doi: 10.1111/j.1468-0084.1971.mp33004002.x CrossRefGoogle Scholar
  44. Yang Z, Wang S, Campbell R (2010) Monetary policy and regional price boom in Sweden. J Pol Model 32:865–879. doi: 10.1016/j.jpolmod.2010.06.004 CrossRefGoogle Scholar
  45. Yao S, Luo D, Loh L (2011) On China’s monetary policy and asset prices. Appl Finance Econ 23:377–392. doi: 10.1080/09603107.2012.725929 CrossRefGoogle Scholar
  46. Yasuda T (2014) A new macroeconomic structural model reveals the economic law of inertia and simulates the housing bubble. SSRN working paper.
  47. Yu (2011) Size and characteristic of housing bubbles in China’s major cities: 1999–2010. China World Econ 19:56–75. doi: 10.1111/j.1749-124X.2011.01266.x CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Department of FinanceNational University of KaohsiungKaohsiungTaiwan

Personalised recommendations