Research On The Influence Of The Stock Market's Development On The Monetary Policy Of China

With the standing development of the information technology and financial deepening, the limit between the currency and other financial assets becomes indistinct and the money supply loses stable connection with actual economic variables. This systematic change makes the monetary policies face a series of new challenges. Through our research, we try to have a systematic theory research and empirical analysis on the impact of the stock market's development on our country's monetary policies and monetary transmission mechanism, and put forward the corresponding policy suggestion. The article has seven parts.The first part introduces the background of the project and the research of home experts. Part two discusses the development of the stock market challenges on the final goal of monetary policies; monetary transmission mechanism; the medium goal and instrument of the monetary policies. The third part analyzes the relationship between the stock market and the macroeconomic index. According to the correlation analysis, SHA has a close relationship with the macroeconomic index. From the Granger Causality Tests between the stock market of China and the macroeconomic index, we have found the turnover of stock is the Granger cause to affect money supply and demand.Part four discusses the impact of the stock market's development on our country's money supply and demand. If we build the logarithm Linear Model on the basis of the general principle of the money demand by making an ADF test of variables and cointegration analysis, predicting the money demand model by OLS and Johansen Cointegration, it would be found that the stock market of our country has had an obvious impact on the money demand according to the recursive results. As far as the money supply, on the one hand, the price of securities goes up and thepublic Liquidity preference increases so as to multiply the Liquidity ratio between Ml and M2. And on the other hand, the growing price causes the Replacement Effect between the money and the assets and so M2 falls. Estimating the model of money circulation velocity by Johansen Cointegration, we find that the price increase of the stock impacts the currency circulation velocity in an negative way.Part five analyzes the impact of the stock market's development on the monetary transmission mechanism of China. On the basis of IS-LM Model, we can build an extensive IS-LM theoretical model containing the stock market and then make an estimation by adopting the TSLS . The findings indicate the stock market of China displays an evident statistical wealth effect, but rather weak. The stock market imposes little influence on the investment but it does impose an evident statistical influence on the money market.Part six discusses the impact of the stock market's development on the goals of monetary policy and the instruments of monetary policy. As far as China's situation is concerned, it is not necessary to set the stock price as the final goal of the monetary policies in the short run. But in the long run it can be put into the extensive price index as the monetary policy goal. Such specific analysis as the measurability, controllability and relativity can be made to tell whether the money supply will continue to serve as the medium goal of the monetary policy of China. Seen from the monetary policy tools, the function of the traditional deposit reserve system and the rediscount policy weakens while the open market policy will be the most important monetary policy instrument of the Central Bank.Last part we put forward some policy suggestion. The major suggestive measures include: give full thought to the money demand of the stock market while making money supplying policies; reform the statistical system of the current money supply; deal properly with illegal fund of the stock market; and put the stock price operation under the supervision of the monetary policies, etc.