This paper studies the interaction effects between monetary policy actions and house price changes in China. I focus on the impact of M2 money supply on house prices in Beijing, the capital of China. A VAR model is constructed and shows that an M2 money supply shock has a significant positive impact on Beijing house prices from the fifth to the ninth month, whereas a house price shock has no significant impact on M2 money supply. To verify whether the impact of money supply is robust in different Chinese cities, I develop another VAR model to observe the housing market in Shenzhen, a first-tier city in southern China. The results show that an M2 money supply shock has only a small significant positive impact on Shenzhen house prices at one month, suggesting that the effect of money supply can vary due to institutional differences.
