A revisit on linkage of hot money, money supply and housing prices in China

In this research, a continuous wavelet method is employed to investigate the dynamic time–frequency varying linkage of hot money, money supply (M2) and housing prices in China. In most time hot money has insignificant effect on M2 which indicates that the effectiveness of sterilization. On the other hand, M2 has a significant influence on hot money especially in the long term. M2 affects housing prices significantly in the long term. However, the effect of hot money on housing prices is pronounced mainly in short and medium terms. Therefore, hot money inflows have not weakened the monetary control in recent years, and both M2 and hot money are important leading forces in the rising housing prices in China. These findings provide implications for the government to formulate monetary policy and regulate the housing market and capital flows.