What drives urban consumption in mainland China? The role of property price dynamics

BOFIT Discussion Papers
What drives urban consumption in mainland China? The role of property price dynamics
13/2011
Author(s):
Yu-Fu Chen, Michael Funke, Aaron Mehrotra
2011. 35 pages / sivua.
Publisher:
Suomen Pankki - Finlands Bank
ISBN:
978-952- 462-708-5
(Web publication)
 
Abstract:
This paper adds to the literature on wealth effects on consumption by disentangling house price effects on consumption for mainland China. In a stochastic modelling framework, the riskiness, rate of increase and persistence of house price movements have different implications for the consumption/housing ratio. We exploit the geographical variation in property prices by using a quarterly city-level panel dataset for the period 1998Q1 – 2009Q4 and rely on a panel error correction model. Overall, the results suggest a significant long run impact of property prices on consumption. They also broadly confirm the predictions from the theoretical model.


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