The Study On The Impact Of The Real Estate Price Fluctuations On Financial Stability

Capital intensiveness is the characteristic of the real estate industry which makesreal estate industry having an intimate relationship with the financial system. On theone hand, real estate market is in need of the support of finance; on the other hand,high profit attracts various kinds of financial institutions to enter the real estatemarket. However, the risk of the real estate industry will be easier to influencefinancial system. Now, Chinese real estate price have grown fast for a long time, andit has accumulated asset bubble on some extent. Therefore, the study on the impact ofreal estate price fluctuation on the financial stability has an important practicalsignificance on controlling the real estate price fluctuation and reducing the impact tofinancial stability.Based on the relevant literature, the paper first has discussed the basic theory ofreal estate price and financial stability. Secondly, the effect channel of real estateprice fluctuation on the financial stability has been thorough ly discussed. Thirdly, thepaper has analyzed the impact of the real estate price fluctuation on the financialsystem in real life through two typical cases—Japan’s bubble economyand American subprime crisis. Based on this, the paper has chosen about10prospective indexes and constructs the financial stability index using the analyticalhierarchy process. Then, the paper has analyzed the influence of Chinese real estateprice fluctuation on the financial stability by using VAR-GARCH-BEKK model. Atlast, some relevant suggestions are given.Through theoretical and empirical research, the study draws the followingconclusions: Firstly, the real estate price fluctuation mainly affects the stability of thefinancial system through four mechanisms which are the wealth effect mechanism,Tobin Q mechanism, bank credit mechanism and shadow banking system mechanism.Secondly, by calculating and analyzing, the result shows that the stability of ourfinancial system has been in the basic stage of steady rise since2003. There is anobvious decline in2008, and since2010, a slow raise trend appears again. But China’sfinancial stability still has a potential risk. Thirdly, the study finds that real estateprice can Influence the financial stability in both mean and vo latility index levels.Finally, this paper proposes policy recommendations to prevent the irrationalexpansion of the real estate market and to control of real estate spread the risk to the financial system.