The Asset Prices Channel Of Monetary Policy Transmission In China

The final objective of monetary policy in China is to stabilize the value of the currency so as to promote the development of the economy. In the view of transmission mechanism, the ability of central bank to control the intermediate target impact in order to reach the final goals depends on whether the transmission mechanism is unobstructed. After the rapid development of capital markets in recent years, the function of asset prices channel in transmission has been emphasized. The fluctuation of stock price and real estate price have the direct or indirect effects on investment, consumption and the public forecast, and then influence the output and prices of the whole society. In the last two years the central bank has already carried out monetary policy to control the macro economy several times. Whether the monetary policy can affect the economic entities through the asset prices channel is an important aspect to determine the effectiveness of monetary policy.This essay was based on the analysis of the domestic and international researches, divided the transmission mechanism into two parts, and analyzed the theory base of these two parts. After that, combined with the reality of Chinese economy, this essay mainly focused on the three aspects: monetary policy, the economic entities and the final targets. Then, we separately set up the vector error correction model that has the function of coefficients restriction about the stock and real estate market to verify the effectiveness of the monetary policy transmission through asset prices in our country. According to the results, we pointed out that the asset prices could not be the target of the monetary policy in our country, and the intermediate target should be transferred from currency supply to interest rate. Finally some policy suggestions were listed to get through the stock and real estate transmission channel.There were some creative aspects in this paper: base on the frame of the monetary transmission mechanism through asset prices, we restricted the coefficients in the VEC model in order to show the relation of the variables. Afterwards, we contrasted the results of the stock and real estate transmission models.