The Research On The Impact Of Real Estate Prices By China’s Excess Liquidity

Since twenty-first Century, with rapid development of national economy andcontinuous large surplus of international balance, RMB appreciation is expected toincrease, and the excess liquidity has become a normality in China’s economic system.When the bank system has excess liquidity, a great quantity of funds will seek forinvestment opportunities, which may result in investment overheating and asset ishigh-priced. At the same time, in recent years, although our country has implementedregulatory policy, real estate price is still rising. Especially from the beginning of2003,house price remaining at a high level, which greatly exceeded resident’s purchase ability.Therefore, it is useful to discuss the relationship between the real estate price and excessliquidity, and as well as how excess liquidity affects the real estate price, which is thefocus of this paper.In this paper, I mainly use theoretical analysis and empirical analysis methods.Through analyzing China’s present excess liquidity situation and the real estate market, Idiscuss influence mechanism between them. Then choosing financial institutions depositdeviation from1999to2010semi-annual data as a measure index of the excess liquidityof China, through VAR model I make empirical analysis between excess liquidity indexand the national commercial housing price. Conclusions are drawn: First, according tothe results of regression analysis, excess liquidity can explain the change of real estateprice; Second, cointegration test results show that there is cointegration relationshipbetween the excess liquidity and real estate price, which is long-term stable relationship;Third, Granger causality test results show that the excess liquidity is the Granger reasonof China’s real estate price. Then, from three aspects to explain how excess liquidityaffects real estate price: First, excess liquidity can accelerate the investment in real estatemarket; Second, bank funds are emergerd into the real estate market, which promotes thereal estate costs to rise, especially land price. And it can lead to the reduction of housingsupply; Third, excess liquidity can improve the real estate market demand through wealth,especially the speculative demand. The land price increasing and policy lagging are justsurface causes, and the excess liquidity is the deep reason that causes price to rise. According to China’s present situation, the theoretical and empirical analysis, it comes tosome policy suggestions to solve problems. For example, in order to curb excess liquidityimpact on real estate market, we must correctly guide the capital into the real estatemarket, and then prevent the real estate price bubbles forming.