What Drives Urban Consumption in Mainland China? The Role of Property Price Dynamics
University of Dundee - Department of Economic Studies
Hamburg University, Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
Aaron N. Mehrotra
Bank for International Settlements (BIS)
May 27, 2011
HKIMR Working Paper No. 15/2011
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.
Number of Pages in PDF File: 30
Keywords: consumption, house prices, China, panel data
JEL Classification: E21, R31, C23, O53working papers series
Date posted: June 20, 2011
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