Abstract
The COVID-19 pneumonia epidemic in early 2020 severely affected all sectors of the Chinese economy, with economic growth plummeting but the property market continuing to heat up after a brief contraction. How to formulate an effective monetary policy in the face of the COVID-19 shock to achieve stable economic growth while curbing excessive real estate price inflation has become a pressing issue for Chinese policymakers today. To this end, this paper focuses on the impact of two types of monetary policy, price-based and quantity-based, on macro-economic variables such as real estate prices and aggregate output by developing a multi-sectoral DSGE model incorporating the COVID-19 shock and comparing them. The analysis finds that both monetary policy rules can achieve the objective of dampening real estate prices. Nevertheless, while causing the same magnitude of real estate price contraction, quantity-based monetary policy leads to greater volatility in variables such as aggregate output, while other economic variables are less volatile under the price-based monetary policy.
Highlights
In the first quarter of 2020, the COVID-19 outbreak resulted in a nationwide shutdown to combat the epidemic and negative GDP growth for the first time in over 40 years. e government introduced a series of macro-economic policies, including active fiscal policy and flexible monetary policy, to counter the impact of the epidemic
Since the outbreak of COVID-19, the economies of various countries have been hit to varying degrees, and the recent rapid heating of the real estate market has drawn the attention of scholars
In this context, regulating the real estate market while stabilizing the economy has become a key problem faced by China’s policy makers. is paper focuses on the effects of two types of monetary policies, price-based and quantity-based, on variables such as real estate prices and aggregate output by building a multi-sectoral DSGE model that includes COVID-19 shocks. e following conclusions are drawn
Summary
In the first quarter of 2020, the COVID-19 outbreak resulted in a nationwide shutdown to combat the epidemic and negative GDP growth for the first time in over 40 years. e government introduced a series of macro-economic policies, including active fiscal policy and flexible monetary policy, to counter the impact of the epidemic. High prices characterize the real estate industry, high leverage, and high financialization, which has exacerbated distortions in the real estate market, spawned price bubbles, and generated a great shock to economic and financial stability. Against this realistic background, effectively curbing real estate prices, defusing real estate risks, and maintaining macro-economic stability through policy implementation have become a common concern for future policy researchers and policymakers. This paper attempts to construct a DSGE model incorporating COVID-19 shocks, real estate market, and financial frictions based on the latest monetary policy theory research in the context of the current reality of global epidemic shocks and the new normal of China’s economy. Based on the analysis results, it selects the optimal policy conducive to calming housing prices and stabilizing economic development
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