Proactive Structural  Simulation of Monetary, Economic, Fiscal Policy Impact on US/China  Housing, Prices, Mortgage Crisis and China Stock Index Futures Chinese
Spline GARCH- Granger Causes, Casualty Analysis of China Macroeconomic, housing market control impact on ShSZ 300 Futures Prices, Risks Early Warning

Warren Huang, OSA Global Strategic Management , San Francisco, CA, US, http://www.osawh.com/,  wh3928@yahoo.com                                       

Fenglan Zhang,  Zhejiang University, Hangzhou, Zhejiang, China  joycezhang001@yahoo.com.cn,  
                                                                  Abstract
 

This paper extended Dr. .Warren Huang’s 30 years  pioneering  proactive structural interest rate, currency stocks, bond, housing , commodities asset prices valuation and bubbles bursts Operations Simulation Analysis (OSA) to R. Engles  Spline-GARCH and Granger’s Causes and Casualty analysis co-integration of dynamic macro, industrial finance time series estimation.
 
 This research  applying OSA  thousands artificial intelligence, neural net  based causes and consequences simulators , which have been developed, implemented last 20 years proactive strategic investment, markets, credit risks early warning for 30 million China, US Taiwan 15 cities 30 million institutional, private investors,  QFII, QDII, real estate, multinational oil CEO, seniors executives and 24 global central bank governors, risks management conferences.
These proactive structural simulators integrate macro, financial, industrial economic OSA  tracking, forecast years, months ahead of the emerging bull/bear markets trends of daily equities, bond, commodities, metal, energy housing asset prices mechanism  and causes, onset, spread, recovery, early  warning of last 20 years global banking, financial and asset bubble burst, loan default, credit crisis and its impact on real time daily  global stock indices prices.
   These models replacing current 30 year old probabilistic, statistical CAPM asset pricing, financial ratio valuations approach,  provide proactive, structural deterministic simulation of last 20 years China/global monetary, economic policy, macro economic, housing, stocks, commodities price bubbles resulted wealth gain excess liquidity,  impact on daily  interest rate, currency, stock indices
This work implemented Engles, Spline GARCH, Granger causes, and casualty co-integration, tracking  China Peoples Bank monetary, economic policy, macro-economic, housing industry price bubbles control removing RMB currency, stocks, housing wealth gain excessive hot money liquidity speculation and , inflation rate,  and US Dow Jones Index ( global investors sentiments, US mortgage crisis) impact on China stock price bubble, especially Shanghai-Shenzhen 300 index futures price. It confirm OSA analysis among the dependent,-independent variables causes and casualty analysis, indicating low causes due to money supply growth (central banks ignoring Dr. Warren Huang warning on asset prices bubble, policy emphasize on  GDP and  CPI  ), and industrial production contribution little  to stock prices, indicating stock bubbles did not contribute to production) and highly correlated, caused wit correlation higher than 0.94) by RMB, housing prices  wealth gain excess liquidity and Dow Jones stock index, (with Hong Kong, QFII investor sentiment and housing mortgage crisis correlation constant greater than 0.98 and average error below 1.8 % in covering daily data from Jan 2005- Dec. 28, 2007.
Further application of EGARCH to macroeconomic inflation,  currency, oil prices, mortgage loan default  have been achieved jointly by Dr. Huang and this author.
He warned on June 2007 Peking University Int'l Financial Engineering Risk Management Conference and Sept. 2007 on Wall Street Market Beat, Real Time Economics, Blog that US housing price continue slump into summer 2008 drag US into recession, Dow Jones, stock  markets and global stocks into bear market correction  China macro-economic, housing control raise interest rates 6 time, Banking deposit rate 10 times to 15 %, remove excessive housing, stock market wealth gain led to China coastal housing price plunged 30- 50 % continue into summer 2008, drag China stocks into  6 months bear market correction, with banking, housing, oil petrochemical stocks down 30- 50 %, SHSZ 300 index plunged from 6000 to 3500- 4500, and rebound to 5500 in summer, after inflation down to 3 %, easing in credit tightening and US stocks recovery.

 Keyword : Housing Bubbles,  Equities bubbles, Engles, Spline GARCH, Granger causes, casualty,   Operations Simulations Analysis,  proactive structural CAPM  ,global stock indices,  credit risk,  market risks, currency  interest rates derivatives pricing , risks hedging.   

presented to Peking University International Financial Engineering Risks Management Conference, June 10, 2007
Nankai University Global corporate governance, Nov. 3, 2007, Tianjin, China