Finance Seminar（2018-07）

Topic: Flight to Housing

Speaker: Feng Dong, Antai College of Economics and Management, Shanghai Jiao Tong University

Time: Wednesday, 28 February, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract:

The 2007 global financial crisis has generated episodes of flight to liquidity and quality with lasting high uncertainty, especially in the age of the shortage of safe assets. This is particularly true for developing economies like China, in which financial market is underdeveloped and the financial account is tightly regulated. Moreover, both the household-level and aggregate data suggest a higher economic uncertainty boosts the price of housing with relatively good quality. Motivated by the empirical facts, we embed housings as safe assets into a dynamic general equilibrium model with incomplete markets. With calibration on Chinese economy, we show that household's holding housing to fight against the increasing uncertainty delivers a housing boom, crowding out resources that could have been allocated to the real sector, and resulting in a recession. We further incorporate the major policy intervention in Chinese housing market, i.e., the house-purchase limit policy, into our baseline model. Policy intervention does effectively curb the house prices and dampen the crowding out effect, but at the cost of restricting households' access to housings as the store of value, and thus lowers welfare by magnifying consumption dispersion. Consequently the policy intervention faces a trade-off between macro-level stability and micro-level volatility.

Introduction:

Dr. Feng Dong is an assistant professor of Finance in Antai College of Economics and Management, Shanghai Jiao Tong University. He obtained his Ph.D. in Economics at Washington University in St. Louis in 2014, M.A. in Economics at CCER of Peking University in 2009, and B.A. in Management at Renmin University of China in 2006. His research interest mainly consists of Macroeconomics, Monetary Economics, Financial Economics, and Chinese Economy. His research has been published in Journal of Monetary Economics and Economic Theory.

fengdongecon.weebly.com

Your participation is warmly welcomed!