Empirical Research On The Impact Of Money Supply, The Stock Price

Combining the domestic and foreign related studies with the monetary policy transmission mechanism and its present operations in China, we have demonstrated the stock price' influence on the money supply. Based on our summary of the prevailing monetary theories and endogenous money and their significance, we find that stock price does influence the money supply on the basis of a strict multiple effect in the long or the short term. We have explained the process and means of stock price's influence on money supply.Empirical research has thus been carried out with related quarterly data from 1993 to 2005 in China with the method of sub-analysis step by step and then syndic analysis. On the basis of that, the long and short term impact level added by central bank, the commercial banks and the public has been concluded. At last, the paper builds cointegration models and error correction models between the stock price and money supply by using the Johansen reduced rank regression approach and vector autoregressive method. Through the model we have examined the short-term and the long-term effect on the money supply brought by the stock price.