Research On Relation Between Real Estate And Inflation In China

Housing system reform has begun institutional since 1998 in China, and real estate was aimed to be the mainstay industry of national economy. From then on, real estate is in a rapid growth stage while the housing price is sky-rocketing accordingly. At the same time, real estate is not only consumer goods, but also important investment item with the ever-expanding of the capital market.On one hand, with the analysis of correlation between real estate and inflation, this paper studies the driving effects of real estate on national economy and the hedging function of real estate. On the other hand, it brings to light the mechanism and channel that how the fluctuation of housing prices works on inflation through investigating the impacts of fluctuation of housing prices on the investors, the consumers and the financial institutes. Then we got the theoretical basic of the empirical research.Furthermore, the paper reviews the development of real estate market in China from 1978 when the policy of reform and opening started, and analyzes the performances, the reasons and the measures of the inflations during these stages. It gives a simple description about the present price level in China.The aim of the paper is to clarify whether we can get the information of inflation change from housing price and what is the relationship between fluctuation of housing price and inflation change? Thus we could propose reasonable suggestions to the monetary department so that they can take active measures accordingly. The author makes use of the relative data of China from 1998 to 2007, and carries on vector autoregressive model and vector error correction model in the empirical analysis. It finally proves that the effect of housing price on inflation is very limited in short term, but significant in the long run. And a positive feedback mechanism exits between housing prices and inflation which means that such mechanism would make economy-overheating and housing price-foam in a stable macro-economy environment.Although this paper assimilates home and abroad scholars' achievements, it also has some innovation. In the process of empirical analysis, the paper firstly used the stepwise regression method to choose the remarkable variables, and then put the research of the correlation between the housing prices fluctuation and the inflation under a large background which makes the empirical analysis workable.