Empirical Study On The Relationship Between Monetary Policy And Stock Market

Theory and practice show that, there is a close interaction between monetary policy and stock market. This paper attempts to discuss the relationship between monetary policy and stock market in the terms of the interest rate channel and the credit channel on the basis of the former research. Using the sample data between 1996 and March 2011, we follow the event study method to find that the prices of SZZS react sensitively to the changes of interest rates; using the Unit Root Test, Granger Causality Test and Variance Decomposition method in VAR model, we find that stock prices don't react significantly to the credit transmission channel of monetary policy, but changes in stock prices occur ahead of the changes of money supply and money credit, lead to structural shock to the money supply, and affect the effectiveness of the monetary policy. In the end, according to the empirical results above, the paper suggest that the central bank should concern about the leading indicators of the stock price volatility, taking the stock market's money demand into account; promote market-oriented interest rate reform process, enhancing the effect of the interest rate transmission mechanism; improve the construction and development of the stock market and other capital market systems.