HOUSING PRICE, DISTRICTS, AND TRANSPORTATION INFRASTRUCTURE: A STUDY OF PRICE SPILLOVER IN SHANGHAI BY GVAR METHOD by Changqing Mu A dissertation submitted to the Faculty of the University of Delaware in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Economics Spring 2017 © 2017 Changqing Mu All Rights Reserved HOUSING PRICE, DISTRICTS, AND TRANSPORTATION INFRASTRUCTURE: A STUDY OF PRICE SPILLOVER IN SHANGHAI BY GVAR METHOD by Changqing Mu Approved: __________________________________________________________ James L. Butkiewicz, Ph.D. Chair of the Department of Economics Approved: __________________________________________________________ Bruce W. Weber, Ph.D. Dean of the College of Business and Economics Approved: __________________________________________________________ Ann L. Ardis, Ph.D. Senior Vice Provost for Graduate and Professional Education I certify that I have read this dissertation and that in my opinion it meets the academic and professional standard required by the University as a dissertation for the degree of Doctor of Philosophy. Signed: __________________________________________________________ Siyan Wang, Ph.D. Professor in charge of dissertation I certify that I have read this dissertation and that in my opinion it meets the academic and professional standard required by the University as a dissertation for the degree of Doctor of Philosophy. Signed: __________________________________________________________ James L. Butkiewicz, Ph.D. Member of dissertation committee I certify that I have read this dissertation and that in my opinion it meets the academic and professional standard required by the University as a dissertation for the degree of Doctor of Philosophy. Signed: __________________________________________________________ William R. Latham III, Ph.D. Member of dissertation committee I certify that I have read this dissertation and that in my opinion it meets the academic and professional standard required by the University as a dissertation for the degree of Doctor of Philosophy. Signed: __________________________________________________________ Breck Ledo Robinson, Ph.D. Member of dissertation committee ACKNOWLEDGMENTS I would like to thank my advisor Dr. Siyan Wang, without whom this dissertation would not have been possible. Her knowledge, encourage and enthusiasm enlighten me in this study. I also want to thank my wife and my parents. Your unconditional support and love mean everything to me. iv TABLE OF CONTENTS LIST OF TABLES ...................................................................................................... viii LIST OF FIGURES .................................................................................................... xiii ABSTRACT ................................................................................................................xvii Chapter 1 INTRODUCTION .............................................................................................. 1 2 LITERATURE REVIEW ................................................................................... 8 2.1 Housing Price and Its Long-Run Determinants .......................................... 8 2.2 Short-Run Dynamics of Housing Price..................................................... 18 2.3 The GVAR Model and Its Applications in Housing Market .................... 20 3 DATA ............................................................................................................... 24 3.1 Background of the Chinese Housing Market .............................................. 24 3.2 Housing Prices ............................................................................................ 25 3.2.1 Features of the Shanghai Housing Market ......................................... 25 3.2.2 Housing Price Data ............................................................................ 26 3.4 Land Price ................................................................................................... 36 3.5 Common Variables ..................................................................................... 41 3.6 Weight Matrix in the GVAR Model ........................................................... 46 4 METHODOLOGY ........................................................................................... 47 4.1 An Overview of the Global VAR Model .................................................... 47 4.2 Time-Varying Weights in GVAR Modeling .............................................. 55 4.3 Diagnosis of the GVAR Model................................................................... 57 4.3.1 Weak Exogeneity Test ....................................................................... 57 4.3.2 Average Pairwise Cross-Section Correlations ................................... 58 4.3.3 Parameter Stability Test ..................................................................... 58 4.4 Evaluating Housing Price Spillover Effects ............................................... 60 v 4.4.1 Contemporaneous Effects .................................................................. 60 4.4.2 Generalized Impulse Response Function ........................................... 60 4.4.3 Counter-Factual Analysis................................................................... 61 5 EMPIRICAL RESULTS ................................................................................... 63 5.1 Introduction ................................................................................................. 63 5.2 GVAR Model with a Fixed-Weight Matrix ................................................ 64 5.2.1 Model #1 ............................................................................................ 67 5.2.1.1 The Unit Root Test.................................................................... 68 5.2.1.2 Lag Orders Selection................................................................. 68 5.2.1.3 Cointegration Ranks.................................................................. 68 5.2.1.4 Weak Exogeneity Test .............................................................. 69 5.2.1.5 Average Pairwise Cross-Section Correlations .......................... 69 5.2.1.6 Parameter Stability Test ............................................................ 70 5.2.1.7 Contemporaneous Effects ......................................................... 70 5.2.1.8 Generalized Impulse Response Functions (GIRFs) .................. 72 5.3 The GVAR Model with a Time-Varying Weight Matrix ........................... 77 5.3.1 Model #2 ............................................................................................ 88 5.3.1.1 Unit Root Test ........................................................................... 88 5.3.1.2 Lag Orders Selection................................................................. 89 5.3.1.3 Cointegration Ranks.................................................................. 89 5.3.1.4 Weak Exogeneity Test .............................................................. 89 5.3.1.5 Average Pairwise Cross-Section Correlations .......................... 90 5.3.1.6 Parameter Stability Test ............................................................ 90 5.3.1.7 Contemporaneous Effects ......................................................... 91 5.3.1.8 Generalized Impulse Response Functions (GIRFs) .................. 93 5.3.1.9 Counterfactual Analysis ............................................................ 96 5.3.2 Model #3 .......................................................................................... 105 5.3.2.1 Counterfactual Analysis .......................................................... 108 5.4 The Two-Equation GVAR Model ............................................................ 113 5.4.1 Model#4 ........................................................................................... 115 5.4.2 Model#5 ........................................................................................... 119 5.4.2.1 Contemporaneous Effects ....................................................... 120 5.4.2.2 Generalized Impulse Response Function (GIRF) ................... 120 vi 5.4.2.3 Counterfactual Analysis .......................................................... 122 5.4.2.4 The Effect of M2 on Housing Price ........................................ 126 5.4.2.5 An Alternative Counterfactual Analysis ................................. 130 6 CONCLUSION ............................................................................................... 136 REFERENCES ........................................................................................................... 140 Appendix A INFORMATION ABOUT SHANGHAI METRO NETWORK .................... 146 B 0/1 FIXED-WEIGHT MATRIX ..................................................................... 149 C STATISTICAL RESULTS OF MODEL #1................................................... 150 D STATISTICAL RESULTS OF MODEL #2................................................... 166 E STATISTICAL RESULTS OF MODEL #3................................................... 186 F FIXED-WEIGHT FOR THE GVAR MODEL WITH LAND PRICE ........... 206 G STATISTICAL RESULTS OF MODEL #4................................................... 207 H STATISTICAL RESULTS OF MODEL #5................................................... 235 vii LIST OF TABLES Table 1 Summary of the Literature of Fundamental Factors ................................ 15 Table 2 The Distribution of New Immigrants in Shanghai from 2000 to 2010