Inter-city housing spillovers and monetary policy in China

While a great deal of effort over the past few decades has been devoted to the study of housing spillovers, much of the work has failed to grasp the critical role played by monetary policy. This study aims to investigate the full version of housing spillovers across monetary policy and local housing markets by introducing a hybrid structural vector autoregression (VAR) followed by a “two-sector” spillover account. Using monthly data for national M2 and city-level housing prices in China, we find that monetary policy has since 2019 played a key role in combating housing systemic risk by lowering inter-city ripple effects. At the same time, the pivotal position of Shenzhen in coordinating monetary policy with residential markets deserves explicit emphasis. © 2024 Elsevier Ltd