The Effects of Macroprudential Policy on Housing Market: Evidence from 30 Provinces in China

Abstract

The housing market plays a significant role in Chinese economic growth. However, a house price inflation and the high credit growth could affect the stability and the safety of the financial system. In order to manage the potential risks from the housing market, macroprudential policy has been popularly used in recent years as both a regulatory and supervisory instruments, including China. The main objective of this thesis is to evaluate the effects of macroprudential policies on house price stability management of both newly constructed housing market and second-hand housing market in 30 provinces of China and to find out which instrument is more effective by using the fixed-effect panel model. By the way, to point out the different effectiveness between the different individual macroprudential policy instruments on newly constructed houses price (overall) and second-hand houses price (overall) by using the pooled panel model. Also, to compare the different effectiveness of the reserve requirement ratio (RRR) on three different housing space types of newly constructed houses and second-hand houses. Using panel regression, it is found that most of macroprudential instruments are significant and have the expected relationship with house prices. In particular, during 2006 to 2014, the reserve requirement ratio (RRR) and some of loan-to-value ratios (LTV) are effective instruments, but reserve requirement ratio (RRR) is more effective. And most of instruments have different effectiveness between newly constructed housing market and second-hand housing market. In addition, during 2011 to 2014, it is found that the reserve requirement ratio (RRR) can manage the house price very well with the large size more than the middle size and small size in both two markets.