Inter-city housing spillovers and monetary policy in China

While a great deal of effort over the past few decades has been devoted to the study of housing spillovers, much of the work has failed to grasp the critical role played by monetary policy. This study aims to investigate the full version of housing spillovers across monetary policy and local housing markets by introducing a hybrid structural vector autoregression (VAR) followed by a “two-sector” spillover account. Using monthly data for national M2 and city-level housing prices in China, we find that monetary policy has since 2019 played a key role in combating housing systemic risk by lowering inter-city ripple effects. At the same time, the pivotal position of Shenzhen in coordinating monetary policy with residential markets deserves explicit emphasis. •Housing spillovers stem from monetary policy and housing market itself.•Our new VAR model is to introduce monetary policy into housing spillovers.•A two-sector spillover account can show relative importance of monetary policy to local housing markets.•Our results indicate that China's monetary policy is effective against housing systemic risk since 2019.•Shenzhen is a focal city to maximize the influence of monetary policy in housing markets.