Magnification of the ‘China Shock’ Through the U.S. Housing Market

The ‘China shock’ operated in part through the housing market, and that is an important reason why the China shock was as big as it was. If housing prices had not responded at all to the China shock, then the total employment effect of the China shock would have been reduced by more than one-half. Housing prices in the United States did respond to the China shock, however, so the independent employment effect of the China shock is reduced by about 20–30%, with that remainder reflecting exogenous changes in housing prices.