Asset Price Effects On Monetary Policy From The Perspective Of Intermediate Targets

Since 1978, under the guidance of the reform and opening-up policy, China has completed the transformation from a planned economy to a socialist market economy. In the maintained rapid growth economy, the asset markets dominated by stock and real estate gradually form and is having increasing impact on the macro-economy and monetary supply and demand. In this paper, starting from the law of money circulation, we analyze the changes of money supply, GDP and inflation and find that before 1978-1996, money supply and inflation was closely interacted, and had a smaller money supply and demand gap; During 1996-2008, the link between money supply and inflation has been weakened and the gap of money supply and demand is widening for the rapid growth of asset market.So, this paper is based on Taylor rule, using the amount of credit, money supply and interest rate as dependent variables, with GDP gap, expected inflation and asset price movements etc. as independent variables to set up regression equations of sub-period. The results showed that:With the developments in asset markets, the link between money supply and the real economy gradually weakened, but with the link between money supply and asset markets strengthening; China's monetary supply policy hasn't considering the impact of price changes in asset markets; With the formation of assets market, the relationship between interest rates and asset prices is strengthening.According to the results of empirical studies in this paper, we find that the intermediate target of monetary policy should take into account the impact on asset prices, and interest rates would be more appropriate than the amount of money as intermediate goal of monetary policy.