Fluctuation Of Asset Prices And Monetary Policy

The global financial crisis triggered by the U.S. subprime mortgage crisis is considered the most serious one since the Great Depression. The crisis is essentially that the burst of asset price bubble led to the credit crisis of financial institutions, transmitted to the real economy, and then triggered a major recession. In this backdrop, the monetary authorities are concerned about the relationship between monetary policy and asset price fluctuation. This dissertation views the relationship between monetary policy and asset price fluctuation as the research object. I believe it is of some significance for the monetary authorities to prevent asset price bubbles, to use monetary policy tools rationally and to maintain financial stability and economic development.There are two diametrically opposed views in the issue of monetary policy should or should not intervene asset prices. One advocating non-intervention claims that the objectives of monetary policy is still upholding the traditional price stability; the other advocating intervention claims that monetary policy can intervent asset price bubbles through achieving good control of inflation since asset prices contain information about future inflation. The focus is whether there is relationship between asset prices and inflation. Therefore, this dissertation takes a empirical analysis about the relationship between asset prices and inflation in the United States and China. The conclusion is that the relationship between asset prices and inflation is not significant and instability through researching separately based on the whole period and some specific historical periodsSince monetary policy can not intervent the asset price through controlling inflation, then a real problem is whether monetary policy have a direct impact on asset prices fluctuation. This dissertation selects the data of China's monetary policy and stock market and takes an empirical analysis by constructing VAR model based on researching separately based on the whole period, the falling period and the jumping period. Through impulse response analysis about different policy instruments (including real interest rates, money supply and loans of financial institutions) on asset prices, we can conclude that, no matter which time, the raise of real interest rates can restrain the stock price inflation. In addition, the monetary policy instruments have non-symmetry impact on stock prices during the falling time and jumping time, so we will choose different monetary policy instruments at different times. Although the monetary policy have a direct impact on asset price fluctuations, the due fluctuations of the asset price is of benefit to the economy's development. On the one hand, the basic price of assets can be found in the market; on the other hand, the asset flows from the place of low productivity to the place of high productivity, which is to improve asset allocation efficiency, thus to promote economic development.Throughout history we can see that the real harm to human society is the asset price bubble. With the bubble bursting, it is not only to disrupt the stability of the financial system, but also to decline economy. Thus, this dissertation takes some case studies about four historic asset price bubble burst triggered by the financial crisis, summarizes some common features of the fact. In particular, each asset price inflation are accompanied by excessive credit expansion. We take a economic analysis about asset price bubbles from the macro-angle and micro-angle and find that the relative lack of effective demand is the root causes of creating asset price bubbles. Since, on the one hand, the relative lack of effective demand causes the relative scarcity of investment opportunities, leads to idle funds flowing in the stock market and to create asset price bubbles; on the other hand, the relative lack of effective demand limits the future earnings in real economy, leads to asset price bubbles burst, if investors do not believe that the future earnings in real economy can support the value-added asset pricesAlthough monetary policy can not simply eliminate the asset price bubble, monetary policy can control the size of asset price bubble that accepted by society through intervening asset price bubbles appropriately. In this way, asset price bubbles will fade slowly, not burst, thus does not cause major economic and social shock. By constructing a simple model of optimal monetary policy, we find that in two periods, the central bank's optimal monetary policy depends on the minimum welfare loss function, but in the multi-period, the central bank optimal monetary policy is a positive response to the asset price bubble. In addition, taking into account interest rates regulating the asset prices will have a greater negative impact to the real economy, we put forward innovatively two new monetary policy instruments, such as legal asset reserves and legal leverage.