The Effect Of Hot Money On The Growth Rate Of Price Of China Real Estate

Since the2007financial crisis, although a large amount of research demonstrate a positive association with the hot money inflow and the housing price of China, the causal nature of this relationship remains unclear. We examine the casual effect of hot money inflow on the housing price and the positive correlation using an instrumental variables (IV) approach. The monetary quantitative easing and tapering policy of United States, and the hot money inflow in Brazil are the instruments used to identify the causal effect. Our results show that the hot money elasticity of the housing price of China is-0.411, which means that one billion dollars increase in the hot money inflow leads to a0.411%decrease in the growth rate of housing price. Our findings reveal the negative effect of hot money inflow on the housing price of China.