The Monetary Transmission Mechanism: An SVAR Analysis of the Four Municipalities in China

Abstract

This paper explores the role of housing markets in the transmission of monetary policy shocks across four Chinese municipalities, namely Beijing, Shanghai, Tianjin, and Chongqing. The analysis is based on identification of housing demand shocks, monetary policy shocks and credit supply shocks through a Structural Vector Autoregressive (SVAR) model estimated using monthly data for four cities from July 2005 to December 2015. The empirical results show great differences in the four cities as far as the housing market is concerned. They also indicate that housing plays a stronger role in the transmission of monetary policy shocks in Beijing and Shanghai than in Tianjin and Chongqing. These results are reasonably robust across several model specifications.