Statistics Seminar（2013-20）

Topic:Bubbles or Fundamentals Modeling Provincial House Prices in China Allowing for Cross-sectional Dependence

Speaker:Yan Shen, NSD PKU

Time:Thursday, 21 November, 14:00-15:30

Location:Room 217, Guanghua Building 2

Abstract：This paper provides an empirical analysis of changes in real house prices in China using quarterly provincial level data during 2002 to 2011. It examines the extent to which real house prices at the provincial level are driven by fundamentals such as real per capita disposable income, real interest rates, as well as by common shocks that can bring different marginal impacts to different provinces. We take explicit account of both cross-sectional dependence and heterogeneity by allowing the slope coefficients to be heterogeneous across provinces, as well as using a multi-factor structure error term. We compare the performances of the Mean-Group (MG) estimator, the Common Correlated Effects (CCE) estimator, and the Comment Correlated Effects Pooled (CCEP) estimator. We find that fundamentals play less important role in explaining the house prices in China, and the danger of bubbles represented by unstable unobserved common factors worth attention. We also find that ignoring cross-sectional dependence in modeling house prices can overestimate the role of economic fundamentals in explaining house prices in China.

About the speaker：Yan Shen is a Professor of Economics from National School of Development, Peking University. Her research areas are applied econometrics, with topics focused on China-related issues, including evaluation of the performances of financial institutions, health and aging, income, expenditure and wealth inequality. She is also a member of the research team for China Health and Retirement Longitudinal Study (CHARLS).