The Conduct Mechanism Of Monetary Policy

With the development of stock market, the stock market has changed the financial structure of a country, leading to the diversification of the impact of monetary policy objects and the complexity of the implementation, and has played an increasingly important role in the national economy of a country, thus further affecting business and residential investment, savings and consumption behavior. Therefore it has important practical significance to study the transmission mechanism of monetary policy in China from the perspective of the stock market.With the deepening of China’s market-oriented reforms since the reform and opening up, China established stock market formally in the early nineties,through the rapid development, it has begun to take shape today. In2005, China begun to split share structure, China’s stock market has experienced a historic turning point from then. In2007, due to the impact of the U.S. subprime mortgage crisis, China’s financial markets also produced a substantial fluctuation, which also had a significant impact on China’s economic development. This article mainly uses the data since the financial crisis in2007, to study whether the transmission mechanism of monetary policy in China is smooth from the point of view of the stock market, if it does not smooth, we will have to find out the cause and take countermeasures to solve this problem, and thereby improve the stock market.The monetary policy transmission mechanism of the stock market can be divided into two parts:First, the conduction of monetary policy on the stock market; second, the conduction mechanism of the stock market on the real economy. In this paper, we use the newest data to do the empirical study from these two aspects,and we will see whether the smooth conduction of China’s monetary policy in the stock market since2007. According to the empirical analysis, this paper gives China’s monetary policy by the conduction of the monetary amount is not smooth, unobstructed through the interest rate transmission mechanism, and the conduction of the stock market on the real economy is also not smooth. Then combined with China’s actual situation, this paper makes analysis of the unobstructed and finds some reasons as follow:the small and medium investors occupy the dominant position in China’s stock market and the funds in the stock market is mainly from residents demand savings and cash; our stock market is not mature enough, the breadth and depth is not enough; Tobin’s "q" effect of the conditions are not satisfied in China; the stock market is instability, so it is difficult to form a stable expected revenue; the wealth effect exists "crowding out". And for these reasons, this article attempts to put forward some suggestions:First, we should establish the effective coupling mechanism of the money market and the capital market; Second, it can be considered that the interest rate should be seen as an intermediate target of monetary policy; third, we must develop the stock market to make a solid foundation for the monetary policy transmission; finally, the government should improve macroeconomic environment for investment and encourage investment in the real economy.The contribution of this paper is that since the establishment and development of China’s stock market, the domestic scholars have made much research of the monetary policy transmission mechanism in the stock market. Since the2007U.S. subprime mortgage crisis, the world economy and financial system have been profound changes, and China’s stock market also has suffered an unprecedented challenge. So this article take the latest data to study the issue and get some conclusions different from the scholars’. The paper found that the M2money supply and interest rates have negative impact on stock prices in the long-term, and interest rate has a greater impact on the stock price. This shows the effectiveness of the money supply as an intermediate target of monetary policy in China is declining, therefore we propose that it can be ready to take interest rates as an intermediate target of monetary policy.The empirical research is limited to the scope of the partial equilibrium analysis, and the lack of data collection, processing capacity and econometric analysis, we are not able to use a general equilibrium analysis method such as simultaneous equations to make comprehensive empirical study of data in China, so conclusions from this paper may not enough objective and accurate. It will strive to improve in the subsequent research process.