Global Transmission Shocks of U.S. Monetary Policy on China's Housing Prices

Abstract

The paper demonstrates that the monetary policy of the United States has important spillover effects to China. Based on the monthly data from January 2016 to April 2024, this paper establishes a VAR model to analyze the influence of U.S. monetary policy on China's real estate prices and its transmission channels, including interest rate, exchange rate, consumer confidence, and asset price. The results show that the impact of the Federal Funds Effective Rate on housing prices is very quick, reaching a maximum in the first month and continuing to have a positive impact over the long term. The Federal Funds Effective Rate and China's Loan Prime Rate have a positive impact on housing prices in the early stage, but then there is a change in impact direction. The Exchange Rate, Consumer Confidence Index and CSI 300 index all had positive spillover effects on housing prices in the early days. The variance decomposition analysis shows that the exchange rate channel plays the most significant role in causing China’s real estate price fluctuations.