Author(s)

Lin Zilin ¹

Affiliation(s)

¹ Business School, The Chinese University of Hong Kong, Hong Kong, 999077, China

Corresponding Author

Lin Zilin

ABSTRACT

China's real estate industry has experienced rapid growth since the initiation of economic reforms and opening up. With the real estate sector gaining increasing prominence as a key driver of the national economy, the finance and economy of China have exhibited progressively stronger spillover effects on this industry. This study aims to examine disparities in the extent, intensity, and timing of shocks to real estate prices between China's business cycle and financial cycle. Employing a structural autoregressive vector model, we analyze the spillover effects of China's business cycle and financial cycle on real estate prices from 2006 to 2021. Additionally, we conduct variance decomposition analysis to compare the divergences in shocks between China's business cycle and financial cycle. Our empirical findings reveal that both China's business cycle and financial cycle contribute to fluctuations in real estate prices, with the financial cycle exhibiting an early warning effect for the business cycle. Furthermore, we observe distinct explanatory power of China's business cycle and financial cycle on real estate price fluctuations. Hence, it is imperative for our government to recognize the significance of spillover effects arising from China's business cycle and financial cycle on real estate prices. Effective measures should be taken to mitigate co-shocks resulting from the overlapping of the real estate cycle with the business and financial cycles. Additionally, incorporating real estate macroprudential policy as a vital component within the macroprudential policy framework will facilitate the stable and sustainable development of China's real estate industry.

KEYWORDS

Real estate prices, business cycle, financial cycle

CITE THIS PAPER

Lin Zilin, Comparative study on the influence of business cycle and financial cycle on real estate price in China. Financial Engineering and Risk Management (2023) Vol. 6: 123-133. DOI: http://dx.doi.org/10.23977/ferm.2023.060616.

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