LAUSR

Abstract This paper studies the effect of social interactions on house price dynamics in China. We first present household-level evidence on Chinese households’ tendency to keep up with the home ownership status of their communities (“keep up with the Zhangs”). By means of a dynamic stochastic general equilibrium model, we then study the impact of these housing consumption externalities on housing demand and prices. Our Bayesian estimation and simulation reveal that these externalities significantly increase house prices in the long run (steady state) and amplify their response to shocks. Housing tax policies can mitigate the amplification effects.