Relationship Between Inflation And Asset Price In China

Sice the establishment of China’s stock market from the early1990s, reforms ofmonetary policy were carried out in1998. China’s monetary policy and asset priceson the economy has been significantly promoted. All along, China’s monetary policyand asset prices have a very close relationship. After the establishment of the stockmarket, China has experienced high-crunch-such high economic volatility, and twoin the back of high economic growth accompanied by sustained high inflation rate,which makes the regulation of China’s monetary policy is facing enormouschallenges.Firstly, we use of standard deviation of scrolling window to analyze thecharacteristics of Chinese inflation volatility and asset price increases, we find thatinflation volatility and the rate of change of asset price volatility are negativelycorrelated. Further more, we analyze the relationship on inflation, asset price anddifferent periods of the economic cycle. The results show that changes in theinflation rate and the rate of change in asset prices is basically the same, in the periodof economic recovery and prosperity, inflation lead the asset price in the rate ofchange, but in a recession and the depression, asset price lead the inflation in the rateof change.We use the EGARCH-M model to analyze the quantitative relationship betweeninflation and asset price growth, and analyze their relationship and interactionasymmetry, we find that asset price inflation rate ability to explain and predict theweak, and inflation swelling behavior of asset prices to changes in the growth ratewith the ability to explain and predict, exacerbate inflationary fluctuations will leadto rising inflation, while making slower growth in asset prices.Besides, asset pricefluctuations in the growth rate would make the decline in inflation, and it will resulting in an average growth rate of decline in asset prices, level of inflation for thevalue of the uncertainty of the impact of inflation is asymmetric, reverse the impactwill be even greater uncertainty for the inflation impact than a positive impact,indicating prices phase uncertainty is weak, the price decline phase of uncertaintystronger. Level value of the asset price growth for asset price growth uncertaintiesasymmetric, positive impact than the reverse impact for assets greater impact onprice growth uncertainty.This article uses three variables TVP-VAR model to analyze the effect ofdifferent monetary policy results of the economic variables, we find that interestrates are effective regulation of inflation, but in times of economic overheating,inflation, interest rate regulation for regulation to be in after a year before paying off;regulatory effect of interest rate policy after the financial crisis of the mostsignificant, while the effect of interest rate regulation during the duration of thelongest. Inflation on the growth rate of the money supply in response to the positiveimpact of the shock can occur the first time to have a positive effect, the moneysupply after the financial crisis of the regulatory effect of inflation is best, relative tointerest rates, money supply growth regulation effect on inflation is more obviousand more timely. Economic overheating effect on the regulation of interest ratesduring the best asset prices, the entire response period has maintained the desiredeffect. In the period of steady economic development, asset prices’ respond tointerest rates showing an unstable situation, alternately produce the desired effectand reverse the regulation. Asset prices are lags in three periods of the money supplyshock response.For the above analysis, we get the following revelation: only continue to deepenthe reform of the interest rate to market, interest rate can be a policy tool in order toeffectively implement the regulation on the economy. Monetary policy for theregulation of asset market reaction is more obvious, therefore we should give full attention the stock market as " economic barometer " when developing policies. Butwe also can not ignore the stock market influenced by policy and capital, not take thestock price as a policy the control objectives, keep a distance of the stock market andpolicy formulation. Relative to the capital market, the effect of monetary policy oninflation regulation more timely and more obvious, but in China’s capital market, thestock market and bond market are separated, the monetary policy on the stockmarket regulation is not timely, so we need to gradually establish and improve therate transmission mechanism, improve the effectiveness of policies.