Empirical Study Of Mutual Influence Between Stock Market And Monetary Policy

From the early1990s,China’s stock market has experienced22years ofdevelopment and perfection，its scale and influence increases rapidly.Stock markethas become an important site for financing and investing，associating with nationaleconomy more closely.The growth of the stock market has changed the amount andstructure for the demand of money，but also affects the implementation of monetarypolicy.Therefore, this essay discuss the interaction of China’s stock market andmonetary policy from two aspects,theory and empirical.In theory,this essay explainthis topic in three ways: monetary policy influencing the stock market, the impact onthe monetary policy and the stock market transmission mechanism.In the empiricalanalysis，use cointegration test, Grainger causality test，vector autoregression model、impulse response function and variance decomposition to study on the relationshipbetween the returns and monetary policy. Select monthly data from2008to2012,including Shanghai Composite index, money supply, interbank interest rates andeconomic index.Rearch contents include:the relationship between economicvariables,the impact of monetary policy on stock markets and in return stock marketon the monetary policy.The results indicate that,the money supply, interbank interestrate and stock returns have a long-run cointegration relationship，money supplyinfluences the stock market，especially M1；the change of interest rate doesn’tcomply with economic theory；monetary policy has time lag.In the end,the essay putsforward some suggestions:monetary policy should consider the effect of the stockmarket;speed up the interest rate marketization process,clear up the stock markettransmission mechanism;upgrade stock market regulation,attract more long-termfunds.