Effect Analysis Of The Asset Price Channel Of Monetary Policy Transmission In China

Since the1970s of the20th century, financial assets (stocks, bonds, real estate and the others) have be increasing the proportion of total social and economic capital with the relaxation of financial regulation and the emergence of financial innovation. If asset prices fluctuate substantially, its effect well far beyond the capital market and real estate market, even on serious impact macro-economic fundamentals and the effectiveness of monetary policy. The fluctuation of asset prices has not only shaken the basis of the monetary policy transmission role, but also affected the ultimate objective of monetary policy. Therefore, under the current international economic and financial situation which has become more complicated, based on the classical theory of monetary policy transmission, it is of practical significance to have an in-depth discussion on the transmission mechanism and effectiveness of monetary policy according to China’s reality.Being based on the framework of the relationship between monetary policy, asset prices and macro-economy, this channel effect analysis of the asset price transmission mechanism is from the perspective of real estate market as well as of stock market to test the effectiveness of monetary policy transmission. This article is divided into four parts.Chapter One provides the background of this paper, introduces the main purpose of this paper is to test the effectiveness of monetary policy transmission through asset prices by showing the serious impact because of the fluctuation of asset prices on the macro-economy with two instances of the economic crisis which Japan and the United States experienced. Then it gives the relevant literature review and the structure of this whole article. At last, it points out the innovation and defect of this paper.Chapter Two studies the asset price transmission mechanism of monetary policy. It begins with the mechanism of monetary policy transmission, focusing on the conduct mechanism of monetary policy through asset prices. Then it explains how the monetary policy acting on the real economy from the perspective of real estate market and stock market, laying a foundation for the subsequent empirical analysis.Chapter Three is empirical study of the channel effects in monetary policy transmission through asset prices, which is the main content of this article. It uses VAR model to test the effectiveness of monetary policy transmission channels through asset prices from the perspective of real estate market and stock market. From the result we can obtain that being in the block, the asset price channel still can not play its role, the reason is that the second phase of this transmission is not smooth.Chapter Four draws some conclusions from the empirical study and tries to find out the root causes. Then it puts forward some relevant policy recommendations according to China’s reality.The paper’s innovation is taking real estate price and stock price into VAR model at the same time, so their interaction is also included in the model. It is more realistic for them to make impact on monetary policy and the real economy together.