The Impact Of Adjustment Of The Required Reserve Ratio On Stock Market

With the development of Chinese economic, particularly with the trend of the globalization and the integration since the1990s, the Chinese stock market as a regulatory intermediary of the monetary policy, it becomes much more important.Stock market which is the same as the commodity price is determined by the relationship of supply and demand in the market. The price fluctuation in Chinese stock market, in addition to common characteristics in general stock market, manifest some unique irrational features:large price fluctuation, high vibration frequency, etc. what’s more, Monetary policy as a instrument of the monetary authorities will have critical impact on the stock market inevitably, and to some extent change the stock price. So considering the relationship the stock price and monetary policy, the monetary authorities must take full account of the implementation of monetary policy shock on stock market when executing the monetary policy. The required reserve ratio as a monetary policy, influences the country’s borrowing and interests rates by change the amount of loans available.In recent years, the People’s Bank of China constantly adjusts the required reserve ratio to regulate the macro-economy. But Western central banks rarely alter the reserve requirements, because it would cause immediate liquidity problems for banks with low excess reserves.They generally prefer to use open market operations to implement their monetary policy. The People’s Bank of China uses changes in reserve requirements as an inflation-fighting tool and raised the reserve requirements ten times in2007, eleven times in9in2008, and6times in2010.The relationship of required reserves system and financial market development is few concerned by economic circles. For a long time, economics circles only study deposit reserve system itself and its related reformation. In fact, there is a close relation in them. Otherwise, for the considering the efficiency of the monetary policy, the article of the impact of regulation of the required reserve ratio on stock market has a strong practical significance.During the study of this thesis, Even Study Methodology was adopted combined with GARCH model. The result of model shows that GARCH model is adoptable in Even Study Methodology. Through the empirical study, it is showed that the effects of adjustment of the required reserve ratio on our stock market differ, to some extent, depending on the concrete conditions of the national macro-economy and investor’s expectation on market.