The Impact Of Asset Prices On Chinese Economy

Since 1980's, inflation in major countries and regions in the world was effectively under control, what is contrast is that a dramatical fluctuation between inflation and deflation occurs among world financial market specifically at the stock and real estate markets. From the perspective of China, it is not uncommon to see stock prices at times increasing and others decreasing drastically during the decade since the establishment of the stock market. Meanwhile real estate price fluctuates from one end to the other.It is obvious that a sizable fluctuation of asset prices would impose a great influence on the national economy and financial stability. However, the mechanism under which the asset prices affect economy, consumption and investment, etc. is yet to be fully realized. For example, in terms of the two relatively common assets, house and stock, current studies on their impacting channel and impacting extent to real economy are not concluded unanimously. The conclusion of this issue is the key to resolve the debate on whether monetary policies should respond to asset prices.Through the research and analysis of the dissertation, we can obtain a systematical understanding of asset prices impacting channel and their impacting extent to real economy theoretically, and get an overall view that asset price fluctuation will affect consumption, investment, output, inflation and monetary policy response in our country. Especially we can clarify the impacting extent of stock price and house price on China's economy. The paper will help us further understand the impact of asset prices on Chinese families, enterprises and central bank decision making from the theoretical point of view. In practice, it may provide some references for monetary policy making and choosing, for supervision of the securities and real estate and it also would be helpful to consumers and investors for their decision making.Firstly, by theoretical analysis of impacting channel of asset prices on consumption and investment, analysis of wealth effect, Tobin's q effect and relationship between net worth of asset and investment under asymmetric information, the dissertation applies OLS estimation, Unit Root Test, Granger Causality Test, cointegration Test and VAR model in the empirical analysis of the impact of asset prices on China's consumption and investment. Secondly, it makes a detailed empirical analysis of the impact of asset prices on Chinese inflation through VAR model. Thirdly, on the basis of augmented IS-LM model and augmented IS-PC model, the paper does the empirical research on the impact of asset prices on Chinese consumption, investment and output gap, etc. Lastly, in the idea of general equilibrium analysis and restriction of the reciprocity between asset prices and macroeconomic variables, it makes comparative research on the impact of asset prices on China's output, consumption, investment and monetary policy through SVAR model. Moreover, based on the Taylor Rule, it does research on the issue of whether the response of Chinese monetary policy to stock price is neutral.The possible innovation of the dissertation lies in three aspects: first, a systematical empirical study and comparative analysis of the impact of stock price and house price on China's economy remedies the insufficiency of the present research in this field in China; second, the application of SVAR model to analyze the response of Chinese monetary policy to asset price shock complements the research of China's monetary policy response to house price; third, the construction based on China's economic system, of augmented IS-PC equation, structural shock vector and augmented Taylor Rule equation makes the models more practical and the results more believable.