Housing price volatility and the capital account in China
Gallagher, Kevin P.
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China experienced significant volatility in its housing market from 2005‐2013. Economists analyzing the determinants of volatility in these markets find that the bubble was largely been driven by factors specific to the Chinese economy and Chinese economic policy. In this paper, we examine the extent to which a) short-‐ term capital flows may have further impacted the prices and volatility in the Chinese housing market and b) whether China’s 2006 Capital Account Regulations (CARs) on foreign purchases of Chinese real estate were effective in reducing the level and volatility of prices in China’s housing markets. According to our OLS baseline model, we find that short-‐term capital flows from abroad had a modest impact on price increases in the Chinese housing market, but a more significant impact on increasing market volatility. In terms of Chinese 2006 CAR, the measures did not appear to have impact on reducing housing prices, but had a strong impact on reducing volatility in Chinese housing market. The results from a supplementary quantile regression analysis show that hot money magnified the impacts of capital flows on housing prices during upward surges in the housing price. In terms of market volatility, our quantile regressions suggest that the more volatile the housing market became, the larger the impact short-‐term capital flows had on accentuating such volatility. Furthermore, we find that the 2006 CARs continued to have a strong impact on reducing volatility in the Chinese housing market during the period under study.
This repository item contains a working paper from the Boston University Global Economic Governance Initiative. The Global Economic Governance Initiative (GEGI) is a research program of the Center for Finance, Law & Policy, the Frederick S. Pardee Center for the Study of the Longer-Range Future, and the Frederick S. Pardee School of Global Studies. It was founded in 2008 to advance policy-relevant knowledge about governance for financial stability, human development, and the environment.
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