An Empirical Study On The Correlations Of Domestic Money Supply, Stock And Real Property Prices

In recent years, China has experienced the stage of sustained and rapid economic development. The impact of money supply on asset prices is self-evident, and the asset price fluctuations can also affect the balance of the money market in turn at the same time. This paper outlines both at home and abroad has some theories on the basis of research results, absorb and learn from the effective methods of empirical research, at last explores the relationships and mutual influence mechanism of money supply, stock prices and real property prices both theoretically and empirically.After using the monthly data from1998to2011for empirical research, this paper shows that there exists a cointegration-relationship among the three. Through the Granger causality test, it is proved that money supply and real property prices have the cause and effect relationship, while real property prices is a Granger cause for the rise of stock prices. The subsequent analysis of impulse response functions and variance decomposition shows that on one hand, money supply growth in the short term can significantly push up real estate prices; on the other hand,real estate prices is positively related to money supply, and this effect relationship is not significant in the short term which although has an increasing trend in the long term. Because of the absorption of the stock market, stock prices to rise in short-term can significantly cause the increase of money supply, but in the long run this relation remains stable; moreover the empirical results show that the money supply have little effect on stock prices. Meanwhile, real estate prices have prominent influence to stock prices, the former is positively related to last in short term but in the longer term it shows the negative relationship; stock prices is positively related to real estate prices, and the relationship between them remains stable in the long term.In the end, combined with the findings of the relationships between money supply, stock prices and real estate prices, several strategies based on the current situations in China are proposed:1, to strengthen the control of money supply in China, maintaining a moderate growth rate.2, to set up the strict censorship to credit funds of the real estate and to insist on house prices control policy not be moved.3, In view of the money supply has little effect on stock price changes, and it mainly governed by the law of itself, so the government should further improve to set up a sound capital market regulations and institutional system.4, Weigh the two markets of interactive features, the implementation of coordinated regulation to prevent the accumulation and transfer of financial risks.