Time-varying impacts of monetary policy uncertainty on China's housing market

Abstract

We investigate how the monetary policy uncertainty (MPU) affects China's regional housing prices. We extend the empirical literature on the relationship between MPU and housing prices by incorporating both time-varying features and core-periphery city network structures. Using the housing returns of 70 major cities from 2007 to 2020 and a newspaper-based MPU index for China, we find that the dynamics of spatial interdependence are negatively correlated with MPU, but the total effects of MPU on housing prices are divergent across different cities. Moreover, speculators tend to purchase houses in dominant (non-dominant) cities as MPU decreases (increases), leading to the so-called “flight-to-safety” effects. Our findings can be accounted for by cities' outstanding loan balance and unemployment rates. We highlight the role of MPU in determining regional housing prices, and call for regulating dominant cities when MPU level is high. • We augment a novel time-varying parameter spatial model with dominant cities. • Data-driven technique is used to identify dominant cities within the core-periphery structure. • Monetary Policy Uncertainty (MPU) affects China's housing prices heterogeneously. • The heterogeneity can be explained by city's loan balance and unemployment. • The flight-to-safety effects can explain the transmission of MPU to housing markets.