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Stock Prices And Monetary Policy Effectiveness

Posted on:2003-03-07Degree:MasterType:Thesis
Country:ChinaCandidate:D Y ZhengFull Text:PDF
GTID:2206360095452835Subject:Finance
Abstract/Summary:PDF Full Text Request
In recent years, the prices kept dropping and investment in fixed assets remained weakening. Many scholars have provided kinds of explanations to these phenomena. In this paper. I want to put forward my own opinion from the angle of stock price and efficiency of monetary policy. What action should monetary authority take when confronted with fluctuating stock price? In period of deflation, should the monetary policy accord with the one in period of inflation? So the question is whether improper monetary policy would prompt the emergence of bubble and thus cause crumbling effect to economy. Therefore, to study such a problem as stock price and efficiency of monetary policy is of great significance for not only theoretic research, but also Chinese practice.This paper is structured as follows: Firstly I briefly explains why I choose this topic. Chapter 1 describes how monetary policy causes the changes in stock market and interprets the transmit mechanisms how monetary policy impact consumption and investment through firms and households. By providing a general equilibrium model, Chapter 2 describes the whole impact of stock price on efficiency of monetary policy. Particularly. I explain that the existence of stock price channels do abate efficiency of monetary policy when there are bubbles, and once the bubbles expand to a certain extent, the channels mentioned above will even cause economy collapse. Chapter 3 discusses some measures that monetary authority should take to stock price. My conclusion is that monetary authority should "watch", but not follow stock price. Once confirmed by qualitative analysis that there are bubbles in economy, monetary authority should take proper actions. Finally, with above analysis, Chapter 4 demonstrates some inspiration applicable in our country. Monetary authority should change their logic in time of inflation, raise interest rate; bring down expect stock returning people have formed, so as to poke the bubbles and finally realize flourishing development of our real economy.
Keywords/Search Tags:Stock price, Efficiency of monetary police, Bubble Monetary policy channel, General equilibrium model
PDF Full Text Request
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