Abstract
This paper presents a longitudinal analysis of the relationship between housing prices and inflation by employing new housing price indices from 29 large Chinese cities over the 2003–2013 period. Based on the Autoregressive Distributive Lag (ARDL) model and bounds test, we find no long-run co-integration relationship between housing prices and inflation. This result is robust for different types of inflation (actual, expected, unexpected inflation). Furthermore, it is found that the housing prices in China grow spectacularly in the sample period owing to the dramatic development of the Chinese economy, while inflation grows in a more modest way. Although the study is conducted in the context of China, the results can provide useful evidence to the debate on the relationship between housing prices and inflation.
Highlights
In China, with the acceleration of the market economy development, the past two decades have witnessed rapid growth of the real estate industry, which is characterized by a long-term increase in housing prices
This paper attempts to re-analyze the relationship of Chinese housing prices and inflation, using, for the first time, new housing price indices of 29 first-tier and second-tier Chinese cities constructed by Fang et al (2016), and employing the Autoregressive Distributive Lag (ARDL) model and bounds test
In view of the regional variation of the real estate market in China, this paper uses the data on housing price index (HPI) recently constructed by Fang et al (2016), which are substantially different from other HPI indices in the prior literature examining Chinese real estate market, and data on inflation in the 29 firsttier and second-tier Chinese cities for the 2003–2013 period to re-examine the long run relationship between house prices and inflation
Summary
In China, with the acceleration of the market economy development, the past two decades have witnessed rapid growth of the real estate industry, which is characterized by a long-term increase in housing prices. The works by Kuang and Liu (2015), Wu and Tidwell (2015), and Yu and Huang (2016) examined 35 Chinese cities to reveal the relationship between housing prices and inflation These studies have limitations of using HPI data published by the NBSC and the methods they adopt are less robust than the ARDL method. To fill this gap, this paper attempts to re-analyze the relationship of Chinese housing prices and inflation, using, for the first time, new housing price indices of 29 first-tier and second-tier Chinese cities constructed by Fang et al (2016), and employing the ARDL model and bounds test.
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