Monetary policy, foreign speculative funds and house prices in an open economy: Empirical evidences from China

The escalating housing price crisis and financial deficiencies in recent years made the government to reflect on how and to what extent that money supply affects the housing market in China. This paper analyzes the relationship among monetary policy, foreign speculative funds, and house prices in China, using monthly data from January 2003 through December 2009. A VAR system procedure is employed by following Lastrapes(2002) within the Keynesian economy framework. The conclusions are as follows. (1) Foreign speculative funds is one of the most fundamental causes of the price volatility in China´s housing market. (2) In the short term real interest rate granger causes housing price fluctuation. (3) Shocks from money supply have a significant contribution to the price volatility in China´s housing market after year 2003.