Rational Expectations and Monetary Policy: A New Perspective on the Chinese Housing Market

34 Pages Posted: 24 May 2012 Last revised: 13 Jun 2014

See all articles by Kuo-Che Hung

Kuo-Che Hung

National Sun Yat-sen University - Department of Finance

Tai Ma

National Sun Yat-sen University

Ming-Chi Chen

National Sun Yat-sen University - Department of Finance

Date Written: July 16, 2012

Abstract

This paper revisits the effectiveness of Chinese monetary policy from augments concerning rational expectations. To estimate the dynamics of expectations, we incorporate market regime switching into the estimation of the rational expectations element using a recursive solution method. When Chinese market-oriented reforms improves the access of agents to market information, we show that (i) agents using available information behave rationally in forming price expectations and (ii) monetary policies in the presence of rational expectations are neutral with respect to real asset price dynamics, even if the market is heavily regulated by the monetary authority.

Keywords: Rational Expectations; Monetary Policy; State Space Model; Market Regimes.

JEL Classification: E52, R30, C32

Suggested Citation

Hung, Kuo-Che and Ma, Tai and Chen, Ming-Chi, Rational Expectations and Monetary Policy: A New Perspective on the Chinese Housing Market (July 16, 2012). Available at SSRN: https://ssrn.com/abstract=2065760 or http://dx.doi.org/10.2139/ssrn.2065760

Kuo-Che Hung (Contact Author)

National Sun Yat-sen University - Department of Finance ( email )

No. 70, Lienhai Rd.
Kaohsiung, 80424
Taiwan

Tai Ma

National Sun Yat-sen University ( email )

70 Lien-hai Rd.
Kaohsiung, 80743
Taiwan
886-7-525-2000 ext. 4810 (Phone)
886-7-525-4899 (Fax)

HOME PAGE: http://www.finance.nsysu.edu.tw/teachers/matai/e-index.htm

Ming-Chi Chen

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

HOME PAGE: http://cm.nsysu.edu.tw/~mcchen/index.html

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