The Empirical Analysis About The Monetary Policy Transmission Mechanism Of The Stock Market In China

Since1990’s, a lot of countries’ currency authorities have pay highly attention to themonetary policy transmission mechanism of the stock market. Similarly, China’s stock market isdeveloped rapidly during this period, and the development of stock market has brought a bigchallenge to the monetary policy of central bank. Therefore, it is of great significance to studythe effects of the stock market transmission mechanism of monetary policy in China. The contentof this paper is as follows. First, this paper analyses the common theories of monetary policystock market transmission mechanism. Secondly, we combines with China’s national conditionsto analyze the stock market and the monetary policy practice in China, then to put forward ifChina’s monetary policy has the stock market transmission effect. Thirdly, to analyze therelationship between monetary policy and the stock market by the monthly data from1999to2012.The indicators include the three levels of money supply: the one-year time deposit rates,the inter-bank market7-day interbank offered rate and the highest Shanghai A-share CompositeIndex. According to Granger causality test, the one-year time deposit rates, broad money supplyand the inter-bank market7-day interbank rate are the Granger cause of the highest A-shareComposite Index. Analysis based on the VAR model shows that the one-year time deposit rate,broad money supply and bank interest rates in the interbank lending market7days have greatvariance contribution to the highest A-share Composite Index. So we build the State SpaceModel of the broad money supply, the one-year deposit rate, the inter-bank market7-dayinterbank offered rate and the highest Shanghai A-share index. The model’s results show that themoney supply and market interest rates (interbank rates) on the stock prices will have someimpact, but the efficiency is not high. Finally, we use empirical analysis to verify the relationbetween stock market and real economy (Wealth effect and Tobin’s Q Effect) by the methods ofco-integration test and state-space model. We can draw the conclusion that urban residents percapita disposable income, the highest A-share Composite Index and urban resident consumptionexpenditure have a long-term co-integration relationship. But the wealth effect of the stock ofassets in China is still at low level. There is the long-term co-integration relationship amongTobin’s Q, the loan amount of financial institutions and the total fixed completed assets. Since2007, Tobin’s Q Effect has been presented but the effect was also very weak.