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How do housing prices affect consumption in China? New evidence from a continuous wavelet analysis
Chi-Wei Su1, Xiao-Cui Yin2, Ran Tao3
1School of Economics, Qingdao University, Qingdao, China.
Plos One
|September 11, 2018
Summary
Disposable income drives housing prices and consumption in China. While housing prices have a weak wealth effect on consumption, excessively high prices since 2008 have constrained spending.
Area of Science:
- Economics
- Econometrics
Background:
- The relationship between housing prices and consumption is crucial for economic stability.
- Understanding this nexus in China, a rapidly developing economy, is of significant interest.
- Previous studies have explored this relationship, but dynamic analyses across time and frequency are less common.
Purpose of the Study:
- To investigate the dynamic relationship between housing prices and consumption in China.
- To identify the key drivers influencing both housing prices and consumption.
- To analyze the wealth effect of housing prices on consumption over time and across different frequencies.
Main Methods:
- Continuous wavelet analysis was employed to examine the time-frequency dynamics.
- Econometric models were used to assess the influence of disposable income.
Main Results:
- Disposable income is identified as a core factor affecting both housing prices and consumption.
- A weak wealth effect of housing prices on consumption is observed for most of the period.
- A significant long-term wealth effect exists, but it has weakened post-2008, indicating a constraint on consumption due to high housing prices.
Conclusions:
- High housing prices, particularly in recent years, have negatively impacted residents' consumption in China.
- Policy implications for housing market regulation and strategies to boost domestic consumption are suggested.
- The findings highlight the complex interplay between asset prices and consumer spending.
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