The Study On Monetary Policy Transmission Through The Channel Of Asset Prices

This article firstly summarized the main theories on how the volatility of asset prices influences real economy,then based on these theories the following characteristics are generalized:information asymmetry and credit expansion.It's followed that the article analyzes how the characteristics have an important effect on the volatility of asset prices,which conversely influences real economy.From these analysis,it comes to an conclusion that there exists an mutual correlation between the change of credit scale and volatility of asset prices.The second part of the article takes advantage of the model made by Allen Franklin and Douglas Gale to argue that credit expansion can bring about bubbles of asset prices.The fall of asset prices or the burst of asset prices bubbles can make the financial investors suffer from loss or bankruptcy.Because of information asymmetry,the risk loss may be transferred to banks or other financial sectors by investors.Commercial banks or other financial sectors may in turn crunch credit,which leads to the ongoing decrease of asset prices so that financial crisis may take place.Therefore,the central bank should focus on the volatility of asset prices,especially the bubbles of asset prices.The third part analyzes how the central bank should respond to the volatility of asset prices,especially the bubbles of asset prices.According to the analysis above ,this article puts forward a frame of how monetary policy transmmits from intermediate objective then through asset prices to real economy.A conclusion is drawn that the central bank should respond to asset prices,and put great emphasis on the change of credit scale.The fourth part regards the crisis of subprime mortgage loan as an stylized fact.Based on this fact,the article emphasizes the important role that information asymmetry and credit expansion play in resulting in the bubble of real estate in America.Consequently the article empirically analyzes how monetary policy controls real economy through the channel of asset prices.In the end,it is the conclusion that monetary policy of the central bank can change the credit scale,while credit scale leads to the volatility of asset prices which influences the operation of real economy.Therefore,monetary policy of the central bank should pay much attention to the effect which change of credit scale has on asset prices,meanwhile give an eye on the flowing-direction of credit money.