The Research Of Asset Price Volatility And Monetary Policy

Whether the monetary policy should and how to respond to asset price in order to maintain economic and financial stability is a controversial topic. Especially since global financial and economic fluctuation lead by the subprime crisis in2008, the subject on relationship between asset price and monetary policy regained interests and attention of researchers and monetary authorities.Meanwhile, with the fast development of Chinese real estate and stock market since the end of1990s, the proportion of real estate and stock in the wealth of families and corporations has increased significantly. The asset price fluctuated wildly, making great impact on consuming and investing behavior of families and enterprises, which should not be ignored any more. The experience of Japan and United States also suggest that burst and boom of asset price can lead to serious economic crisis, damaging real economy. As a result, it is valuable and meaningful to rethink and analyze asset price, monetary policy and macro-prudential supervision for China responding to possible asset bubble in the future.In this background, this study firstly summarizes the research on whether monetary policy should and how to respond to the asset price fluctuation, finding that until now the theoretic research have not reach a consensus of opinion, while the result of empirical studies varied from each other because of the selection of different sample. Thus, it is necessary to analyze the role asset price plays in the monetary transmission mechanism and its impact on macro-economy under the monetary policy frame in China. Secondly, on the base of monetary transmission mechanism theory, this paper establishes an asset price and optimal monetary policy model which uses quarterly data from1998to2011, and adopts Dynamic Acyclic Graph method and Structural Vector Auto Regression model to analyze the correlation between asset price fluctuation, output, inflation and intermediate target of monetary policy. The empirical analysis illustrates that asset price, especially house price will respond to monetary policy changes instantly, and influence the output and inflation rate later, which suggests that real estate and stock market has played an important role in monetary transmission mechanism in China. Also, there is a time lag between the impulse of asset price and the reflection of consumer price index, resulting in coexistence of moderate inflation and rising asset price. Based on the result, we come up with according suggestion, such as to improve monetary analysis frame, to combine macro-prudential supervision policy, and so on.