The Effects of Interest Rate Regulation on Real Estate Prices in China

Along with more and more serious real estate bubbles, the regulation on the real estate market is much stronger than ever before. Interest rate is one of important means that used many times to regulate real estate. However, it's difficult to prove that raising interest rate can moderate real estate prices and to assess the impact. So the study is benefit to optimize the interest rate policies, to improve the regulatory mechanism, and to promote further development of real estate market. Through having collected quarterly data about real estate market, this paper makes research in the quantitative relationship between interest rate and real estate prices by applying some methods such as co-integration analysis, error-correction model, Granger causality test, impulse response analysis, ARCH model etc. The result shows that: the interest rate in China has a positive correlation with the real estate prices in short term, and has a negative correlation in long term.