China's Capital Market Price Fluctuations On Monetary Policy Research

As the global financial market developing, emerging countries have gradually developed themselves, which influences their countries day by day. However, financial asset price in emerging markets goes up and down more rapidly than developed countries does that leads great hit to the emerging countries' economic development. So, it is far more important for emerging countries to keep their financial markets develop steadily. Accession to WTO, along with the gradual opening up of China's financial industry, how to timely and effectively keep steady development of China's financial market is the key problem, which should be paid close attention. Therefore, study on China's capital market price volatility and monetary policy is of great theoretical and practical significance.In this paper, I put China's stock market as example to illustrate when it is making and implementing monetary policies, should the central bank consider asset price volatility and the extent as well as the correlation between monetary policy and capital market in the developing new financial environment of future. This paper uses the annual data from 1992-2007, using empirical analysis to demonstrate the purpose of this research and concludes that:We cannot say with certainty that China's current monetary policy should immediately put capital price into the consideration, but at least there is such a trend, namely, asset prices will influence monetary policy more and more, especially when asset price changes dramatically in such a short time, the central banks should have full expectations and response timely.In this paper, the logical structure can be divided into three parts.The first part theoretically analyses the relation between financial asset price and monetary policy from asset price. The main contents include:financial asset price and bubble; factors that influence financial asset price; relation between financial asset price. The key point here is how financial asset price impacts monetary policy.The second part, with China's stock market as an example, empirically studies how stock price fluctuations impact monetary policy after analyzing the main ways that financial asset price influences monetary policy. These mainly include:stock price fluctuations and money demand; stock price fluctuations and the circulating velocity of money; stock price fluctuations and Monetary Policy Transmission.The third part, based on the first and second parts, draws this paper's conclusion, suggestions of monetary policy and direction for further research.