The influence mechanism of monetary policy and output shock on the real estate market: an analysis based on the new normal of economic development

ZHANG Xiaoyu1,2 LIU Jinquan1,2

(1.the Center for Quantitative Economics and the Business School of Jilin University, Changchun, Jilin Province 130012)
(2.the Business School of Jilin University, Changchun, Jilin Province 130012)

【Abstract】On the basis of theoretical analysis of the monetary policy transmission mechanism of the real estate market and the effectiveness of monetary policy in the new normal period of economic development when the nominal interest rate is at the zero lower bound, this paper investigates the nonlinear dynamic mechanism of monetary policy, real output and the real estate market, through constructing a smooth transition vector auto-regression (STVAR) model of the real estate climate index, output growth speed, and monetary supply growth speed. It is found that the effect mechanism and the transmission mechanism among them are obviously nonlinear. The effect of monetary policy and output shock on the real estate market is significant in the new normal period of economic development, but the effect of monetary policy on the real estate market is relatively weaker and the duration of the effect is relatively shorter compared with that in the “old normal” period of economic development, thus it is difficult to regulate the real estate market in the new normal period of economic development simply by monetary policy, which agrees with the fact that the relatively loose monetary policy in the current has exerted no significant effect on the real estate market. At the same time, this paper also examines the asymmetric effect of monetary policy and output shock on the real estate market in the economic new normal period. It is found that the effect of monetary policy on the real estate market is asymmetric in terms of scale, and that the larger scale shock of negative monetary has a stronger effect on the real estate market.

【Keywords】 new normal period of economic development; monetary policy; output shock; real estate market;

【DOI】

【Funds】 Key Project of the National Social Science Foundation (15AZD001); General Project of the National Social Science Foundation (15BJY174) special project of China Postdoctoral Science Foundation (2015T80288).

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(Translated by ZHANG Yan)

    Footnote

    [1]. ① If the smooth transition vector auto-regression model includes constant terms and lag 1 to p endogenous variables are taken as the transition variables, then the auxiliary regression equation displayed in Formula (6) will have the complete multicollinearity problem and cannot complete the linear test; in this case, we should delete the variables which will bring the problem from the auxiliary regression equation. The freedom degree of the test statistics of the corresponding X2 distribution is 3mp, and the freedom degree of the test statistics of the F distribution model is (3mp, T - 4mp - 1). Same treatment is done to the overall linear test of the smooth transition vector auto-regression model mentioned in the latter part of this paper. No more explanation will be repeated. [^Back]

    [2]. ② This paper also chooses endogenous variables of higher lag orders as transition variable. However, there is no significant difference between the results and the test results of lag 1 to 2 . Due to the length limitation, the results are not given in this paper. [^Back]

    [3]. ① Please refer to Van Dijk et al [28] for the Grid research to specify the parameter initial value of the STVAR model. [^Back]

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This Article

ISSN:1006-480X

CN: 11-3536/F

Vol , No. 12, Pages 20-35

December 2015

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Article Outline

Abstract

  • 1 Research background
  • 2 Theoretical analysis on the influence of monetary policy and output shock on real estate market
  • 3 Test on the nonlinear mechanism between monetary policy, real estate climate fluctuation and output
  • 4 Dynamic measures on the influence of monetary policy and output shock on the real estate market during the new normal period of economic development
  • 5 Robustness test
  • 6 Conclusion and policy implications
  • Footnote

    References