Theoretical And Empirical Analysis On Monetary Policy Effect Through Asset Price Transmission Channels In China

With the development of asset market and deepening of financial innovation, asset prices have larger effects on monetary policy, and have gradually become potential transmission channels. However, asset price transmission channels are low efficient in China due to the immature capital market, low-level financial integration, incomplete social system, and specific civil wealth structure and consumption behavior. We divide the asset price transmission channel into two phases, namely from monetary policy to asset prices and from asset prices to real economy. We use VAR model and Impulse Response Function to measure the effect of monetary policy on asset prices and find that the transmission is high efficient, then we use Granger Causality Test and Cointegration Test to measure the effect of asset price fluctuations on real economy and find that the transmission is low efficient, specifically wealth effect and Tobin effect are not significant at all, leading to the ineffectiveness of asset price transmission channels. Therefore, we should take proper measures such as enlarge market size, advance market structure, get through the channel between money market and capital market to establish the basic conditions for asset price transmission in order to improve the monetary policy effect.