Is housing collateral important to the business cycle? Evidence from China

Gai, Yue ORCID: https://orcid.org/0000-0003-4521-3176, Minford, Patrick ORCID: https://orcid.org/0000-0003-2499-935X and Ou, Zhirong ORCID: https://orcid.org/0000-0002-4610-7183 2020. Is housing collateral important to the business cycle? Evidence from China. Journal of International Money and Finance 109 , 102216. 10.1016/j.jimonfin.2020.102216

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Abstract

This paper investigates whether housing collateral is important to the business cycle in China. We develop two models, one without housing collateral as benchmark and one variant allowing for it. Indirect Inference procedure tests these two models’ compatibility with the data. We find that the benchmark model passes the test, while the collateral model is strongly rejected. According to the benchmark model, shocks from the housing market have limited impact on the Chinese business cycle. By contrast, the exogenous spending shock from government and net exports, the monetary policy shock and the goods-sector cost/productivity shock, all in turn most likely connected to world business cycle shocks (especially the global financial crisis), are found to be the main drivers.

Item Type:	Article
Date Type:	Published Online
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Elsevier
ISSN:	0261-5606
Date of First Compliant Deposit:	11 May 2020
Last Modified:	12 Nov 2024 07:00
URI:	https://orca.cardiff.ac.uk/id/eprint/131428

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