Magnification of the ‘China Shock’ Through the U.S. Housing Market
The ‘China shock’ operated in part through the housing market, and that is an important reason why the China shock was as big as it was. If housing prices had not responded at all to the China shock, then the total employment effect of the China shock would have been reduced by more than one-half. Housing prices in the United States did respond to the China shock, however, so the independent employment effect of the China shock is reduced by about 20–30%, with that remainder reflecting exogenous changes in housing prices.
We thank Matt Notowidigdo and Albert Saiz for providing us with housing price data and housing supply elasticity data, and David Autor, Gordon Hanson, Matthew Kahn, Brendan Price and participants at the 2019 AEA meeting session “The Impact of Chinese Trade: The Good, The Bad and the Apocryphal” for their helpful comments. Xu gratefully acknowledges financial support from the China NSF under grant no.71973079. Ma gratefully acknowledges financial support from the China NSF under grant no.71673160. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.