The Research On The Interactive Influence Between Money Supply And Stock Prices In China

With the rapid development of Chinese stock market, its impact upon economic activities is greater and greater. In recent years, the interactive relationship between the monetary policy and the stock market has attracted more and more attention, thus gradually becomes a hot issue in monetary theory. As the intermediate target of monetary policy in China, The Money supply has an important position in Chinese monetary policy system. Therefore, the analysis of the interactive influence of the money supply and stock prices has important theoretical and Practical value for the study of the monetary policy transmission mechanism based on the stock market and for our country to make appropriate monetary policy.On the basis of the domestic and foreign studies, this paper mainly analyzed the interaction influence of Chinese money supply and stock prices from the theoretical and empirical point. In theory, it analyzed the impact of money supply on the stock prices from the point of the monetary policy transmission mechanism based on the stock market. It analyzed the impact of the stock prices on money supply, from the point of the money supply endogenous theory and the Money supply model. In Empirical analysis, it established an empirical analysis with vector auto-regression model to analyze the interactive influence of the money supply and stock prices, selecting the monthly data of Chinese money supply and Shanghai composite index from January2000to December2012. The measuring methods involved are Time series stationary test (Unit Root Test), Granger Causality Test, Impulse Response Function and Variance Decomposition Analysis. We can draw conclusions from the empirical research:First, there is an equilibrium relationship between money supply and stock price. Second, the stock prices fluctuation has influence on the money supply. Third, the money supply isn’t the reason for stock prices fluctuation.