A Study On The Relationships Between Stock Prices And Inflation In China

Fisher, as the representative of the traditional economic theory, said that the stock is a powerfulweapon against inflation. Almost all the financial assets: such as currencies, bonds will devalue，owing tothe inflation. However, the stock represents the ownership of physical assets. The price of the stock is thevalue of the physical assets which it represents. So no matter what happens to the CPI, noting will happensto it. However, from the results of researches done by foreign scholars, we can see the opposite conclusion.The study is based on the data of American and some European countries. In response to these twodiametrically opposed conclusions, the author of this article do some researches on the relationshipbetween the stock price and inflation in our country. In this article the author uses empirical methods to testthe relationship between them.This paper reviewed the relevant literature in our country and foreign country. It also considersour national conditions and selects the appropriate econometric model。 The main contents of this paperinclude three points：The first one is whether the stock price is useful in the forecasting of the inflation.Then, if the answer is yes, we want to know whether it is a stable form. The last one is that whether thestock price is helpful in measuring of inflation.In this paper, the author summarizes the research methods of foreign scholars, then find my ownresearch methods, on this basis. Here I select dates for research and analysis from two different timeperiods. The result is different with others. The other scholars only have one result, and different with eachother. We have two different results. There is both positive relationship but also negative relationshipbetween them. The author thinks that, with different sample the relationship between them will vary.Because the macroeconomic conditions will be different in the different periods. And the causes of inflation, manifestations and the interaction between them are also different. In our country the stock priceis useful in the forecasting of inflation. But this is unstable (as there are different relationships betweenthem in different periods). For the question that whether it is necessary to put the stock price into the indexsystem which measure inflation level. The answer is no. Because the predictive ability of stock price oninflation is very weak and unstable. There is no need to put the stock price into the system, as it is notconvenient in practice. Therefore, although the role of stock price volatility on the real economy begins toshow now, in our country, and has became a part of the transmission mechanism of monetary policy. Butnow it is difficult, or that there is no need for the stock price to directly into the field of vision of theCentral Bank. The proportion of the stock assets in the resident’ assets, as time goes on. And the influenceon inflation is also growing. So when the Central Bank formulating policy, they should take the monetarypolicy transmission mechanism of the stock market into account.