EFFECTS OF SHADOW BANKING ON HOUSE PRICES - EMPIRICAL STUDY BASED ON CANADIAN REAL ESTATE MARKET

Canadian housing market, known for its robustness and stabilization, has continuedbooming for over 10 years even during the housing bubbles burst period. Especially in the past fewyears, real estate GDP has represented approximately half of Canada’s Economic growth, wheremost of the outsized contribution lies in the rising section of shadow banking system.In this paper, we introduce the current situation of shadow banking system, analyse thecorrelation between mortgage balances from shadow banks, chartered banks and Canadian housingprices by building up Vector Auto Regression model, Impulse Response Function, and VariationDecomposition. The empirical results show that the house prices respond to the mortgage balancefrom shadow banks to some extent, and chartered banks also play a role. However, the mortgageoutstanding in shadow banks do not respond to change in house prices in return. In the end, weoffer some corresponding policy suggestions based on the analysis.