Skip to main content
SpringerLink
Log in

A revisit on linkage of hot money, money supply and housing prices in China

  • Article
  • Published:
Journal of Housing and the Built Environment Aims and scope Submit manuscript

Abstract

In this research, a continuous wavelet method is employed to investigate the dynamic time–frequency varying linkage of hot money, money supply (M2) and housing prices in China. In most time hot money has insignificant effect on M2 which indicates that the effectiveness of sterilization. On the other hand, M2 has a significant influence on hot money especially in the long term. M2 affects housing prices significantly in the long term. However, the effect of hot money on housing prices is pronounced mainly in short and medium terms. Therefore, hot money inflows have not weakened the monetary control in recent years, and both M2 and hot money are important leading forces in the rising housing prices in China. These findings provide implications for the government to formulate monetary policy and regulate the housing market and capital flows.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4

Similar content being viewed by others

Notes

  1. Robustness test: in order to test whether our empirical results are robust, different measure of the variables which are not taken the natural logarithms is used to test the relationship between these series. The partial wavelet coherency and partial phase difference plots is not different from that in logarithmic form, which shows the robustness of the result. For reasons of length, we did not put it in the paper. Interested readers can get it by email.

References

  • Adalid, R., & Detken, C. (2007). Liquidity shocks and asset price boom/bust cycles. ECB working paper no. 732.

  • Aguiar-Conraria, L., & Soares, M. J. (2014). The continuous wavelet transform: moving beyond uni- and bivariate analysis. Journal of Economic Surveys,28(2), 344–375.

    Article  Google Scholar 

  • Aizenman, J., Chinn, M. D., & Ito, H. (2010). The emerging global financial architecture: Tracing and evaluating new patterns of the trilemma configuration. Journal of International Money and Finance,29(4), 615–641.

    Article  Google Scholar 

  • Bouvatier, V. (2010). Hot money inflows and monetary stability in China: How the People’s Bank of China took up the challenge. Applied Economics,42(12), 1533–1548.

    Article  Google Scholar 

  • Calvo, G., Leiderman, L., & Reinhart, C. (1996). Inflows of capital to developing countries in the 1990s. Journal of Economic Perspectives,10(2), 123–139.

    Article  Google Scholar 

  • Chang, C., Liu, Z., & Spiegel, M. M. (2015). Capital controls and optimal Chinese monetary policy. Journal of Monetary Economics, 74, 1–15.

    Article  Google Scholar 

  • Chivakul, M., Lam, M. R. W., Liu, X., Maliszewski, W., & Schipke, M. A. (2015). Understanding Residential Real Estate in China (No. 15-84). International Monetary Fund.

  • Chung, H. S., & Kim, J. H. (2004). Housing speculation and housing price bubble in Korea. KDI School of Pub policy and management paper no. 04-06.

  • Congdon, T. (2005). Money and asset prices in boom and bust. London: The Institute of Economic Affairs.

    Book  Google Scholar 

  • Dai, J. P., & Yin, X. Y. (2017). China’s monetary policy regulation effect and time-varying reaction characteristics: A test based on house prices and exchange rate. Journal of Zhongnan University of Economics and Law,5, 88–95.

    Google Scholar 

  • Dreger, C., & Wolters, J. (2009). Liquidity and asset prices: How strong are the linkages. Review of Economics & Finance,1, 43–52.

    Google Scholar 

  • Farhi, E., & Werning, I. (2014). Dilemma not trilemma? Capital controls and exchange rates with volatile capital flows. IMF Economic Review,62(4), 569–605.

    Article  Google Scholar 

  • Favilukis, J., Kohn, D., Ludvigson, S. C., & Van Nieuwerburgh, S. (2012). International capital flows and house prices: Theory and evidence. In Housing and the Financial Crisis (pp. 235–299). University of Chicago Press.

  • Feng, L., Lin, C. Y., & Wang, C. (2017). Do capital flows matter to stock and house prices? Evidence from china. Emerging Markets Finance and Trade,53(10), 2215–2232.

    Article  Google Scholar 

  • Guo, F., & Huang, Y. S. (2010). Does “hot money” drive China’s real estate and stock markets? International Review of Economics & Finance,19(3), 452–466.

    Article  Google Scholar 

  • Huang, X., Jin, T., & Zhang, J. (2017). Monetary policy, hot money and housing price growth across Chinese cities. Harvard University OpenScholar.

  • Khushk, A. G., Gilal, M. A., & Taherani, A. (2015). Capital movements and sterilization policies in Pakistan. Grassroots,49(2), 1–12.

    Google Scholar 

  • Kim, S., & Yang, D. Y. (2009). Do capital inflows matter to asset prices? The case of Korea. Asian Economic Journal,23(3), 323–348.

    Article  Google Scholar 

  • Klarl, T. (2016). The nexus between housing and GDP re-visited: A wavelet coherence view on housing and GDP for the US. Economics Bulletin,36(2), 704–720.

    Google Scholar 

  • Liu, T. Y., Su, C. W., Jiang, X. Z., & Chang, T. (2015). Is there excess liquidity in China? China & World Economy,23(3), 110–126.

    Article  Google Scholar 

  • Liu, M. P., Wei, S. X., & Yan, H. P. (2016). A theoretical analysis and empirical test of house price fluctuation from the viewpoint of money supply. Journal of Hainan University (Humanities & Social Sciences),4, 67–74.

    Google Scholar 

  • Lu, X., & Dong, Z. (2016). Dynamic correlations between real estate prices and international speculative capital flows: An empirical study based on DCC-MGARCH method. Procedia Computer Science,91, 422–431.

    Article  Google Scholar 

  • Martin, M. F., & Morrison, W. M. (2008). China’s “hot money” problems. Congressional Research Service Reports, No. RS22921.

  • Ohno, S., & Xu, P. (2013). Hot money flow, money supply, mortgage credit and residential property prices in China. Retrieved from http://www.jeameetings.org/2013s/Gabstract/H-010abstract_PengXu.pdf.

  • Ouyang, A. Y., Rajan, R. S., & Willett, T. D. (2010). China as a reserve sink: The evidence from offset and sterilization coefficients. Journal of International Money and Finance, 29(5), 951–972.

    Article  Google Scholar 

  • Reinhart, C. M., & Reinhart, V. R. (2008). Capital flow bonanzas: An encompassing view of the past and present (No. w14321). National Bureau of Economic Research.

  • Rua, A. (2010). Measuring comovement in the time–frequency space. Journal of Macroeconomics,32(2), 685–691.

    Article  Google Scholar 

  • Su, C. W., Lu, L., Chang, H. L., & Zhao, Y. (2017a). Reserve accumulation and money supply in China: A time-varying analysis. Global Economic Review,46(1), 47–64.

    Article  Google Scholar 

  • Su, C. W., Wang, Z. F., Nian, R., & Zhao, Y. (2017b). Does international capital flow lead to a housing boom? A time-varying evidence from China. The Journal of International Trade & Economic Development,26, 851–864.

    Article  Google Scholar 

  • Su, C., Yin, X., Tao, R., Lobonţ, O. R., & Moldovan, N. C. (2018). Are there significant linkages between two series of housing prices, money supply and short-term international capital?—Evidence from China. Digital Signal Processing,83, 148–156.

    Article  Google Scholar 

  • Tao, S. G., & Zhang, S. Y. (2016). The effects of monetary policy changes on short-term international capital flow. International Business: Journal of Shanghai University Of International Business And Economic, (1), 98–108.

  • Tiwari, A. K., Bhanja, N., Dar, A. B., & Islam, F. (2015). Time–frequency relationship between share prices and exchange rates in India: Evidence from continuous wavelets. Empirical Economics,48(2), 699–714.

    Article  Google Scholar 

  • Torrence, C., & Compo, G. P. (1998). A practical guide to wavelet analysis. Bulletin of the American Meteorological Society,79(1), 61–78.

    Article  Google Scholar 

  • Tsai, I. C. (2015). Monetary liquidity and the bubbles in the US housing market. International Journal of Strategic Property Management,19(1), 1–12.

    Article  Google Scholar 

  • Tsai, I. C. (2017). The housing market and excess monetary liquidity in China. Empirical Economics,53(2), 599–615.

    Article  Google Scholar 

  • Wang, C. H., Hwang, J. T., & Chung, C. P. (2016). Do short-term international capital inflows drive China’s asset markets? The Quarterly Review of Economics and Finance,60, 115–124.

    Article  Google Scholar 

  • Wei, G. (2014). A study on the relation between hot money and Chinese Real Estate Price Index. Journal of Business Administration Research,3(2), 74–76.

    Article  Google Scholar 

  • Wen, X. C., & He, L. Y. (2015). Housing demand or money supply? A new Keynesian dynamic stochastic general equilibrium model on China’s housing market fluctuations. Physica A: Statistical Mechanics and its Applications,432, 257–268.

    Article  Google Scholar 

  • Xia, C. L. (2014). Comparison on determinants of short-term international capital flow in China. Technology Economics,33(5), 92–111.

    Google Scholar 

  • Xu, X. E., & Chen, T. (2012). The effect of monetary policy on real estate price growth in China. Pacific-Basin Finance Journal,20(1), 62–77.

    Article  Google Scholar 

  • Yang, H. Z., & Ji, X. Y. (2017). Research on the correlation of China’s short-term cross-border capital flow with the volatility of RMB exchange rate and asset’s prices in China after the international financial crisis. Mathematics in Practice and Theory,47(8), 26–40.

    Google Scholar 

  • Yang, Z., Wu, S., & Shen, Y. (2016). Monetary policy, house prices, and consumption in China: A national and regional study. International Real Estate Review,20(1), 23–49.

    Google Scholar 

  • Yao, S., Luo, D., & Loh, L. (2013). On China’s monetary policy and asset prices. Applied Financial Economics,23(5), 377–392.

    Article  Google Scholar 

  • Yuan, S. M., & Fan, M. (2012). Does China’s monetary supply comes from international capital flow in recent years? World Economy Study,3, 28–33.

    Google Scholar 

  • Zhang, Y., Hua, X., & Zhao, L. (2012). Exploring determinants of housing prices: A case study of Chinese experience in 1999–2010. Economic Modelling,29(6), 2349–2361.

    Article  Google Scholar 

  • Zhang, J. P., & Liu, X. G. (2016). Structural price increase: Money supply. CPI and Property Price. Economic Review,6, 55–69.

    Google Scholar 

  • Zhao, H. Y., & Zhang, J. M. (2017). Adjustment of money supply structure and phased devaluation of RMB. Research on Financial and Economic Issues, (5), 37–43.

  • Zhao, Y., de Haan, J., Scholtens, B., & Yang, H. (2013). The dynamics of hot money in China. In BOFIT and City UHK Conference on “Renminbi and the Global Economy”.

Download references

Author information

Authors and Affiliations

  1. Science and Information College, Qingdao Agriculture University, Qingdao, China

    Xiao-Cui Yin

  2. Qingdao Municipal Center for Disease Control and Preventation, Qingdao, China

    Ran Tao

  3. School of Business, Guilin University of Electronic Technology, Guilin, China

    Kuang-Cheng Chai

  4. School of Economics, Qingdao University, 308, Ningxa Rd., Qingdao, Shandong, China

    Chi-Wei Su

Authors
  1. Xiao-Cui Yin
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Ran Tao
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Kuang-Cheng Chai
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Chi-Wei Su
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Chi-Wei Su.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Yin, XC., Tao, R., Chai, KC. et al. A revisit on linkage of hot money, money supply and housing prices in China. J Hous and the Built Environ 35, 617–632 (2020). https://doi.org/10.1007/s10901-019-09704-9

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10901-019-09704-9

Keywords

Search

Navigation