Study on the Transmission Mechanism of China's Monetary Policy in Controlling Real Estate Prices

Abstract

In recent years, the “failure” of China’s monetary policy on controlling real estate market has raised a problem: Can the real estate market be effectively controlled by the monetary policy? This paper analyzed the mechanism of monetary policy on the real estate prices by the VAR model. The results indicated that: the monetary policy will affect real estate prices through interest rates, bank credit and monetary supply. The paper also showed that there’re long-term relationships between monetary policy and monetary supply as well as monetary policy and the real estate prices by making Granger test and impulse responses. Based on the fact that monetary policy can control the real estate prices, the paper puts forward to corresponding policies. PREFACE As a capital-intensive industry, real estate’s operation directly impacts on a country’s development level. Therefore, the stability of a country’s real estate prices is of great significance to all aspects of the society. From the experience of some countries’ development, we can learn that the impact of monetary policy on the development of the real estate is very important. In recent years, with the gradual improvement of China’s market economy system and the change of government actor, the macro-control mode is also gradually transforming from administrative means to economic instruments, especially the role of monetary policy has become increasingly important in the country’s macro-control mode. In 2003, China’s real estate market began to develop rapidly. In the same time, the excessive growth of house prices also appeared. In 2004, China adjusted the real state market by making the use of credit and the policy that people have to make a down payment of 40% to buy the second apartment. After the promulgation of the policy, in some areas, such as Shanghai, housing prices decreased sharply. But in 2007, the prices rose so fast that monetary policy did not achieve its desired results. Starting of the third quarter of 2008, China’s real estate industry was deeply affected by the impact of the international financial