Macroeconomic Determinants of China's Housing Prices

The purpose of this paper is to investigate the long-term impact and short-term dynamics of macroeconomic variables on China's housing prices. The Vector Auto-regression (VAR) model has been applied. The empirical results suggest that an equilibrium relationship exists and in the long run the gross domestic product growth rate (GDP growth), consumer price index (CPI) and Shenzhen composite stock index (SI) emerge as the most important variables for housing prices. The outputs of Granger causality test also indicate that these three variables are all granger causes of housing prices. The dynamic analysis shows that the CPI followed by the housing price lagged variable is the variable with the most explanatory power for the variation of the housing prices. In the short-run, housing prices responses to the shock of itself apparently than the shocks from the rest.