Research on the Risk Spillover among the Real Economy, Real Estate Market, and Financial System: Evidence from China

Amidst escalating global policy uncertainties and the painful transformation phase of the Chinese economy, studying the time-varying characteristics of risk spillover among the real economy, real estate market, and financial system holds substantial practical relevance for preventing and resolving significant systemic risks. This paper employs the TVP-VAR-DY model, selects indices from the real sectors to construct a risk spillover index for the real economy, and incorporates indices from the real estate and financial sectors to develop a trivariate SV-TVP-VAR model for empirically analyzing the time-varying nature of risk spillover relationships among these variables. This study reveals that risk spillover among different sectors of the real economy exhibits asymmetry and volatility, with the industrial sector experiencing the highest degree of risk spillover. The prosperity of the real estate market consistently aligns with that of the financial system; however, shocks during periods of risk accumulation in the real estate market significantly amplify risks in the real economy. The financial system serves the real economy, which suffers lesser impacts. Nonetheless, post-2008, the financial system’s support for the real estate market has gradually diminished. Crises exacerbate the extent of risk spillover, but the causative factors and socio-economic context create heterogeneity in fluctuations. Based on these findings, in response to the current real estate shock, the Chinese government should discuss the real economy, the real estate industry, and the financial system within the same research framework. Policies should primarily focus on fiscal measures to promote the recovery of the real economy more rapidly. Additionally, by allowing local governments to implement tailored policies based on local conditions, potential homebuying demand has been effectively stimulated.