The Impact Of Chinese Monetary Policy Operations On The Domestic And Foreign Stock Markets

The transmission mechanisms of monetary policy as well as conductional effect are always concerned by policy makers and the academia. Whether the transmission channels of monetary policy is smooth, can affect the impact of the regulation and direction on the economy. The stock market has opened up new avenues for the conduction of monetary policy. On the one hand, the adjustment of monetary policy by changing interest rates and money supply, which are intermediate targets, directly affect the pace of economic development. On the other hand, monetary policy adjustments can also indirectly affect the investors’ expectation by changing the price of the stock market.The impact of monetary policy on stock market is closely related to the operating tools of monetary policy, as well as the validity of the stock market. Meanwhile, with the continuous development of economic globalization and the rapid improvement of the status of China economy, the implementation of monetary policy, affects not only the domestic stock market, but also maybe the outside stock market. Many studies have proved that U.S. monetary policy can have an impact on China and even the global economy. In the progress of the internationalization of the RMB, increasing economic activities between China and its neighboring countries and regions, China monetary policy is likely to affect stock market prices as well as economic development in other countries and regions through the import and export trade, international capital flows and so on. However, so far, the study about the spillover effects of monetary policy in China is blank in the academia area.In this context, based on the review of tools of monetary policy, we examined the different influence among policy tools on the stock market. Further, this paper also discussed the spillover effects of the operation of domestic monetary policy on the foreign stock markets.The basic conclusions of this paper are as follows:First, we found the impact of China monetary policy for the domestic stock market without a significant leverage effect, but with obvious asymmetry for the Hong Kong stock market. The impact of the bad news from monetary policy adjustment than the same magnitude good news on the Hong Kong stock market was more strongly, which reflected from the side that the Hong Kong stock market was more mature than China domestic stock market. Second, the effect of the different monetary policy played in different economic periods, the adjustment of the benchmark deposit and lending interest rates and the deposit reserve system emphasis played a major role in the trend of the stock price on long-term guide, and open market operations mainly played a role in the short-term fluctuations of the stock prices. Third, the conduction of monetary policy on the price of the domestic stock mainly reflected short-term intervention, but long-term guide effect on the Hong Kong stock market.The paper is composed of seven parts. The first chapter is an introduction, including research background, research significance, research framework and research methods. The second chapter is the literature review. We reviewe researches home and abroad, in each part, we are combing the theoretical results of monetary policy within the theoretical results of the pass-through effect on the stock market and spillover effects of monetary policy. The third chapter is theoretical overview. The contents of this chapter can be divided into two parts, the first part is the theory about the monetary policy impact on capital market, the second part is the theory about the spillover impact of monetary policy. Chapter IV is about the variable selection and data processing method. The chapter introduces how to choose the operational tools of monetary policy, and the sample period, and data processing and descriptive statistics. Chapter V, the empirical analysis of the impact of the operation of monetary policy tools within the stock market. We use EGARCH (2,1) model to test the effect of policies, finding that the asymmetry was weak impact of monetary policy for China domestic stock market. In chapter VI, we use EGARCH (1,2) model to examine the pass-through effect of monetary policy during the entire sample period and the sub-sample of overseas stock markets, and find out that our monetary policy for the Hong Kong stock market has significant leverage effect, and the difference in short-and long-term effects of monetary policy was large. Chapter VII is the conclusions and policy recommendations section of this article.