On The Capital Market Of China's Monetary Policy Transmission Mechanism,

Since 1990s, a great change has taken place in financial structureand economic environment. Along with the decreasing function oftraditional commercial bank, capital market has played a more and moreimportant role in financial activities, therefore, the relationship betweencapital market and monetary policy has caught the attention of relatedauthorities. The capital market in China developed incredibly not only inspeed but also in scale, and the transmission mechanism of monetarypolicy through capital market became as an essential channel as thatthrough credit market. Under such background, this thesis focuses on the transmissionmechanism of monetary policy through capital market in our country inorder to solve the problem whether the transmission mechanism ofmonetary policy through capital market in our country is efficient. Thethesis is aimed at analyzing how monetary policy acts on capital market,and then how it influences the entities through the price's fluctuation ofassets. The thesis begins with the theoretical origin of capital market andmonetary policy, expounding the transmission mechanism of monetarypolicy through capital market in monetary policy theory. And then basedon the development of capital market in our country since 1990s, itanalyzes theoretically and empirically the effectiveness of monetarypolicy condition in capital market, and how monetary policy acts oncapital market as well as how capital market influences investment,consumption and entities. Furthermore, it explores the underlying reasonwhy the transmission mechanism of monetary policy through capitalmarket is hindered and presents some feasible proposals on dredging suchtransmission mechanism as well as improving the effectiveness ofmonetary policy. The thesis follows basic study methodology of theoretical, empiricaland policy analysis. It consists of 4 chapters. Chapter One The theoretic foundation of monetary policytransmission mechanism through capital market. As a channel ofmonetary policy transmission, capital markets got the theoretical discussfor a long time. Although the theory of monetary policy transmissionincludes money mechanism view and credit mechanism view, capitalmarket is contained in the monetary policy transmission process in bothviews, and the asset's price is contained in the concept of price in broadsense. The asset's price acts on investment and consumption and thenaffects the products through Tobin's q effect, balance sheet effect, wealtheffect and liquidity effect. The thesis takes advantage of the advancedanalyzing method overseas, dividing the process of capital markettransmitting monetary policy into two segments, that is, how capitalmarket transmits the monetary policy information to entities, establishingthe theoretical framework of the monetary policy transmission thoughcapital market. Chapter Two Analysis on the variation of monetary policytransmission mechanism. This chapter firstly looks back on the variationprocess of the monetary policy transmission channel in our country aswell as the variation of capital market's development. Based on thetheoretical structure in Chapter One, it analyzes how capital marketinfluences macro-economy in both theoretical and empirical aspects. The first step of this chapter is to analyze the influence of monetarypolicy on asset's price. Considering that monetary market and capitalmarket in our country are far from perfect, this chapter begins with theinfluence of money supply and interest on capital market. In other words,it firstly discovers the unstable correlation between money supply andcapital market through analyzing money supply and deposits. Moreover,it analyzes the influence of interest. If the market interest fluctuates, therelative profits of all kinds of financial instruments will fluctuate, andhence the asset's price will fluctuate. Through the analysis, it is found thatinterest policy cannot increase investment effectively. The second step shows that investors and consumers will reactimmediately after the asset's price fluctuates, and h...