The Research On The Impact Of The China's Monetary Policy On Stock Market

China's stock market has achieved great development over the past 20 years:its financing scale has been continuously expanding, the number of its participants has been increasing, its position in financial activities is on the rise, and it is associated much closer with the entity economy. On the other hand, as an important macro-control means of our country, monetary policy and the effects it has upon the stock market become an increasing concern among scholars and national monetary authorities. The study of the effects of Chinese monetary policy on Chinese stock market is, therefore, of important theoretical and practical significance.This paper employs the VAR model,which was proposed by Sims in 1980,to study the influence of China's monetary policy on Chinese stock market. Exchange rate, the stock market size, economic growth, inflation and other indicators are applied to the comprehensive analysis of the relationship among money supply, interest rate, and the Shanghai composite index from January 1998 to December 2010 It is found that interest rate is the sole granger cause of the Shanghai composite index, while both the narrow money supply and the broad money supply have little effect on the Shanghai composite index. Besides, only the direction of the influence of the broad money supply on Shanghai composite index is defined.During the entire sample after investigation,this paper uses officially launched pilot separation reform projects which happened in April 30,2005 for mark events,the sample periods is divided into two sons sample:January 1998 to April 2005 and May 2005-December 2010, to study the influence of China's monetary policy on the stock market before and after share-trading reform The study found, before and after share-trading reform, interest rate is the Shanghai composite index granger causes,the narrow money supply and the broad money supply is not. After share-trading reform, the narrow money supply increases the variance explanation of the Shanghai composite index explanation, on the contrary, interest rate's explanation was smaller, and the cointegration relation between the broad money supply and the Shanghai composite index does not exist.The results of the study show that, at this stage of China's monetary policy is still should with interest rates as main control tool, while strengthening the money supply to special attention, the central bank should pay attention to the stock market change and not pegged to the stock market.