Theoretical And Empirical Study On The Effect Of China's House Price Shock On Output And CCPI: Evidence On A Credit Channel

Asset price, bank credit and macroeconomy, are closely related: asset price will affect thebank credit and then influence macroeconomy, and even lead to macroeconomic recession.Compared to other asset prices, the house price fluctuation has greater impact on macroeconomy,as it can change the credit capacity of the owner, influencing the will and effort of the bank credit,and therefore influences the consumption and investment through the bank credit channel. Thus,how the house price affects macroeconomy, what kind of role the bank credit plays during theprocess, in which way the interest rate policy is conducted in the house market, whether or notthe house price should be the consideration of the interest rate policy regulation, and howeffective the policy on the house price is, become the major current focus of scholars and policymakers.The paper studies "theoretical and empirical study on the effect of China's house priceshock on output and CPI" from five approaches. First, this thesis calculates the ratio of houseprice to income, based on the data of the average disposable income of the different incomecitizens, exploring the imbalance of the relationship of the prices and the imbalance of the supplyand demand of the housing market, and then explores the relationship among the house price,bank credit, development investment and housing consumption, analyzing the influence of thedevelopment of the house industry on the economic growth. Second, setting up a model, thisthesis explores the interaction between house price and bank credit, and then Granger causalitytest between house price and bank credit testifies the interrelationship between them. Third, thisthesis uses the general equilibrium analysis, exploring the interaction among the credit constraint,the house price and GDP, and then empirically tests the impact of the house price on the GDPand CPI through the bank credit. Fourth, this thesis empirically tests whether the interest ratepolicy reacts to the fluctuation of house price, empirically tests the effectiveness of the housingmarket channel of the monetary credit transmission mechanism, and then empirically tests theinfluence of the interest rate policy on the house price. Last, this thesis explores the influence ofthe house price fluctuations on the consumption and investment, through the balance sheetchannel, and then explores the negative influences of the rising of the house price, on theeconomic growth in the long run. According to the above, the conclusions can be drawn as following.(1) The housing market demand is larger than the supply and potential demand of thehousing market is huge. The imbalance of the relationship of house prices and the imbalance ofthe supply and demand affect the healthy development of the real estate industry. And practicalexperience has shown that the rising of the house price increases the real estate investment andconsumption through the bank credit channel, and therefore promotes economic growth.(2) The theoretical and empirical study demonstrates that interaction exists between thehouse price and the bank credit, which shows that the bank credit will exaggerate the influenceof the house price on the macroeconomy and testifies that the bank credit plays an important roleduring the process.(3) Our house price has impact on GDP and CPI through the bank credit channel.â‘ thetheoretical research show that the interest rate and the house price is negatively correlated, thehouse price and LTV is positively correlated, that is with the increase of the LTV, the houseprice will increase, the rising of the house price will increase the growth of GDP, and with theincrease of LTV, the influence of the interest rate on the house price becomes greater.â‘¡theempirical test shows that the impact of the house price on the GDP is not significant, while onthe CPI is significant, with the CPI increasing first, then beginning to decrease, and increasingagain.(4) Our house price influences the operation of the interest rate policy. The interest ratepolicy reacts to the fluctuation of the house price, and the housing market channel of themonetary credit transmission mechanism is not smooth. The interest rate policy has certainimpact on the house price, but the effectiveness in the long run is quite different from theeffectiveness in the short run.(5) Under the credit constraint, our house price is negatively correlated with theconsumption, while is positively correlated with investment in fixed assets, which will worsenthe structure of the consumption and investment, coupled with the inefficient configuration ofthe bank credit caused by the rising of the house price, and the imbalance of the industrystructure cause by the imbalance in the allocation of resources, decrease the growth rate of GDPin the long run.