Time-series econometric analysis reveals diminishing impacts of monetary easing on Chinese house prices, indicating that severe balance sheet constraints undermine traditional policy transmission.
This paper investigates the dynamic and nonlinear effects of monetary policy on house prices in China from 2008 to 2025. Utilizing a Bayesian Time-Varying Parameter Vector Autoregression (TVPVAR) model with stochastic volatility, we estimate the evolution of policy transmission in terms of shock magnitude and time-lag. By conducting 20,000 MCMC simulations, the study identifies significant structural shifts in the transmission mechanism. The results show that while the stimulative effect of targeted housing credit expansion was dominant during the 2009 and 2016 cycles, its marginal effectiveness has diminished toward historical lows in the 2023–2025 period. Simultaneously, the inhibitory effect of interest rate hikes has become increasingly shallow, suggesting severe balance sheet constraints and weak expectations in the current housing market rather than a classic “liquidity trap.” The inclusion of stochastic volatility underscores the role of market uncertainty in dampening the efficiency of traditional policy instruments.
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Zhu et al. (2026) studied this question.
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