| ID | 108393 |
| Title Proper | Excess liquidity, housing price booms and policy challenges in China |
| Language | ENG |
| Author | Guo, Shen ; Li, Chen |
| Publication | 2011. |
| Summary / Abstract (Note) | Incorporating asymmetric cost and benefit of supplying excess liquidity into an otherwise standard time inconsistency model, this paper offers an explanation of the excess liquidity and housing price booms recently experienced in China. We find that the central bank's incentive to stimulate economic growth with excess liquidity fuels real estate prices and accelerates inflation bias. Therefore, the central bank should free itself from the pressure to achieve an economic growth rate higher than the potential level, and assign an appropriate weight to the real estate price fluctuations in the central bank's objective function, so that the central bank's policy of stimulating economic growth with excess liquidity can be constrained. |
| `In' analytical Note | China and World Economy Vol. 19, No. 6; Nov-Dec 2011: p.76-91 |
| Journal Source | China and World Economy Vol. 19, No. 6; Nov-Dec 2011: p.76-91 |
| Key Words | Discretionary Monetary Policy ; Excess Liquidity ; Housing Price Boom ; Time Inconsistency |