Effect Of Monetary Policy On The Housing Market

U.S. financial crisis was originally triggered by the subprime crisis. The U.S.subprime mortgage crisis began early in2006，then emerging to mid-2007andgradually spread to the European Union, Japan, the world ’s major financial markets.The subprime crisis is a storm of subprime mortgage lenders bankruptcy, the lossesor even bankruptcy of investment funds and other financial institutions, the stockmarket crash.After that was the cause of the global financial illiquid. U.S. subprimemortgage market usually used fixed repayment rate and floating rate combining forrepaying. Buyers or borrowers used fixed-rate loan for a few years, then became afloating rate. With the tightening of U.S. monetary policy, short-term interest rates nolonger stayed low, the repayment rate subprime mortgages also increased significantly.The repayment of lenders became a burden, a direct result of rising defaults whichtriggered the subprime crisis.As the world’s only superpower, sub-prime crisis of United States eruptedinstant impact of the global financial center, the scope was far more than just sub-prime crisis areas, but spread to the entire financial industry. In addition to theUnited States as China ’s largest trading partner except EU, by the spread of thefinancial crisis, although in China was far lower than in other countries, but the realestate market was still caught in the doldrums, prices fell rapidly. Whether theChinese real estate market crisis was simply because of the financial crisis of UnitedStates.Whether the changing of China’s monetary policy also played a role in China’sreal estate market.In this paper, we selected all the variables associated with real estate andmonetary policy, the variable contained the following categories: GDP, IndustrialProduction, CPI, PPI, Money Supply, Interest Rates, Deposits and Loans, ClimateIndex,Fixed Investment, Housing Market, ect, a total of57variables. Selected thetime interval2003to2012, where the average was calculated for a simple unified dataas quarterly data for the monthly data.For a season that there was effect of seasonality,we adjusted the GDP. Theoretical modeling is astructural dynamic factor model,which usedBai and Ng criteria andOnatski test to calculate the number of factors in the model. The model used the EM algorithm to estimate the main factor and modelcoefficients. Through the calculation of all data created by the factor model, thetiming diagram of monetary policy shocks took place by estimated monetary policyshocks and simple Taylor rule. Then wefound what happened to GDP, Living CPIIndex, House Price, HousingInvestmentin both cases.We can get the conclusions as follows: whether the estimated impact of monetarypolicy that model common shocks set to zero, or to estimate the impact of monetarypolicy to replace by the Taylor rule, GDP,HousePrice, Living CPI, HousingInvestment was nearly the same as the real situation.Therecession of economicwouldstill occur, the height of rebound after the recession, too, cyclical fluctuations invariables without any improvement. The monetary policy played no roles in thehousing market and subsequent cyclical fluctuations.Finally, we used conditional forecasttopredictthevalue of each variable only bythe Taylor rule and the real interest rates. Then we could make the sameconclusionthat the monetary policy played no roles in the housing market andsubsequent cyclical fluctuations.