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Can RMB Exchange Rate Expectations Explain the Fluctuations of China’s Housing Prices?

Unlike existing literature that has focused on the relationship between exchange rate
and housing price, this paper studies the housing price fluctuations from the
perspective of RMB exchange rate expectation to resolve the dilemma “guarantee
housing price or exchange rate” after the sub-prime mortgage crisis. This paper
shows that housing prices responded negatively to RMB appreciation expectation
from 1999 to 2008, and positively from 2009 to 2019. After 2009, exchange rate
expectation is the Granger causality of housing prices. After introducing the U.S.
Economic Policy Uncertainty (EPU) released by Baker et al.(2016), the explanatory
power of exchange rate expectations to housing price fluctuations declines but it's
still significant. When EPU increased, housing prices responded negatively after a
brief positive response. Besides exchange rate expectation, several unobservable
factors with rich economic implications can explain the fluctuations of housing
prices in China in the interval of 2006M01–2018M12. The empirical results show
that the degree of Chinese government reversal intervention, interest rate spread
between China and the U.S., and EPU can explain the exchange rate expectation.
The government can control the degree of reversal intervention to affect the
exchange rate expectation and realize the housing price control indirectly.