An Empirical Study on the Interconnections between Money Supply and Housing Price

Abstract

In recent years, the COVID-19 epidemic has caused varying degrees of impact on the M2 money supply. Though the money supply side, a rise in the money supply will cause superfluous funds to access the real estate sector through various channels, which will have an impact on the real estate sector. In this paper, the VAR model is adopted to explore the mutual dynamic influence between M2 and real estate prices through variable stability test, lag selection of VAR model, convergence, impulse response and variance decomposition, etc. The analysis shows that the money supply of M2 positively influences the housing prices in China, however, the housing price has little effect on M2. In other word, the connection is unidirectional, from M2 to housing prices. Based on the consequences of concrete analysis, this paper provides some reference approaches for the progress of our real estate industry in the future.