The Demand For Money In China: A Housing Price Perspective

ABSTRACT

This paper studies the association between housing prices and the demand for money, and the effectiveness of non-monetary policies on the latter. With a simple model of the demand for money, we show that the demand for money is positively associated with both the prices of the consumption goods and housing prices. Such associations are verified by empirical analysis using Chinese data. However, we find that such correlation significantly dropped after China launched housing price regulations in 2010, suggesting that non-monetary policies can be effective in controlling the demand for money.

KEYWORDS:

• The demand for money
• housing prices
• housing price regulations
• inflation
• monetary policy

JEL CLASSIFICATION:

• E3
• E4
• E5
• E6

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ In the paper, ‘the quantity of money’ and ‘the demand for money’ are used interchangeably under the implicit assumption that the money supply always meets the demand for money in the equilibrium.

² We thank an anonymous referee for pointing this out.