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China's real estate price fluctuations and inflation correlation

Author: NiuZhen
Tutor: PuMingGen
School: Qingdao University
Course: Finance
Keywords: real estate prices inflation co-integration test vector error correction model Granger causality test
CLC: F822.5;F224
Type: Master's thesis
Year: 2011
Downloads: 131
Quote: 0
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Since the Chinese housing system reform began in 1998, the real estate market has been developing rapidly. Prices of the real estate market are in a catch-up mode, and going up tremendously especially since 2003. In recent years, the general level of prices has begun to rise accompany with the accelerating of real estate prices. The volatility of real estate prices and inflation rate are generally in great agreement with each other. Therefore, this study of the mutual effect between fluctuation of real estate prices and inflation in China will help to get further understanding of financial stability and prices stability, and offer both theoretical and practical suggestions to the effectiveness of macroeconomic control in the hope of promoting the healthy development of China’s real estate market as well as macroeconomy condition.This paper studies the above problem in both theoretical and empirical way on the basis of research at home and abroad. First it introduces the current condition and economic influence of the real estate prices volatility and inflation in China. And then in theory describes the interaction mechanism of real estate prices volatility and inflation. In the following, the paper picks China’s relevant data from the year 1999 to 2010, using the analysis of econometrics to get the demonstration result. To be specific, the analysis includes the stability test, the co-integration test, the vector error correction and the Granger causality test. Results show that there exists a long positive co-integrative relationship between the volatility of real estate prices and inflation. It proves that the effect of real estate prices on inflation is limited in short term but significant in the long run, while the effect of infation on real estate prices is signifant either in short term or in long term. This long-term relationship and short-term interaction between real estate prices and inflation may lead to economy overheating and housing price foam in a stable macroeconomy curcumstance. Finally, this paper gives several related feasible suggestions according to the actual circumstances in China. It recommends that the government should manage the ongoing real estate prices and inflation comprehensively, taking effective measures to rule real estate prices in order to regulate inflation, while curbing inflation in order to bring real estate prices under control.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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