Research On The Relationship Between Assets Price And Inflation

In the past20years, with the rapid development of China’s capital market, China’s asset prices raise continually, the size of capital is expanding rapidly. Capital market plays more and more important role in people’s life. As China’s capital market main asset, the stock and real estate has achieved rapid development, the price has stepped up. At the same time, domestic prices also continue to rise, the phenomenon of inflation continues to occur. Therefore, in-depth study of multi angles on the relationship between asset prices and inflation has the important practical significance and theoretical value.Based on the previous literature, this thesis purposes to study the relationship between asset prices (stock price and house price) and inflation of China theoretically and empirically. Firstly, it summarizes domestic and foreign literatures on asset prices and inflation.Then, this thesis presents basic theory, investigates the interaction between asset prices and inflation and analyzes factors that assets affect inflation. Asset prices affect inflation by influencing investment, consumption and money supply. On the other hand, inflation is able to affect stock price and house price. Next, it analyzes the current development of asset prices and inflation in China, and examines China’s stock prices, housing prices and inflation. Then, this thesis uses consumer price index as the inflation index, utilizes the real estate price index, stock price index as asset price index, without changing the sequence of three indexes, establishes vector autoregressive model. It conducts ADF unit root test, cointegration test and Granger causality test, thus the empirical relationship among inflation, stock price and house price is obtained. The results indicate stock price and housing price have effect on inflation, and housing price effect is more obvious than the stock price index. Cointegration test shows there exists a long-run cointegration relationship between prices index and CPI, but no causal relationship. Granger causality test indicates that the relationship between real estate market and price level is very close. Finally, this thesis puts forward policy suggestions based on empirical results. Monetary policy should consider the effect on asset prices. The capital market should be perfected and the supply of financial products needs to be increased in order to let social idle funds have more suitable investment channels besides stock market and real estate market. China’s real estate market should be improved and the effective real estate pricing mechanism needs to be established.