The Study Of Monetary Policy Impact On The Stock Market

From June 2014 to September 2015, China’s stock market had grown so crazy at first then turned around in the next three months and there had several large one-day declines. Volatility in the stock market not only increases the uncertainty of the economy which is facing downward pressures, but also brings more challenges to our promoting financial market reforms. Faced with the rapid decline in the stock market, the central bank has a series of three times to lower the deposit reserve ratio and interest rates in June, August and October of 2015,but the results were unsatisfactory. The adjustment of the monetary policy could affect our stock market has become the focus of people again.After reading the literatures found that most of them focused on monetary policy impact on the whole stock market and didn’t consider or in-depth analysis the environment of the market. Therefore, this article from the perspective of stock market movements, selected past 20 years’ monthly dates of money supply M1, benchmark one-year deposit interest rate and Shanghai Composite Index, adopted VAR model empirical analysis the impacts of monetary policy on stock market In addition to analyzed the whole period, we also divided whole period into two stages included rising stage and declining stage and each stage was consisted of two sub-periods then we studied the impacts of monetary policy on stock market under different environments.The empirical results showed that the impacts of monetary policy on stock market were effective in the long term but were limited. This was mainly because the influencing factors of the stock market are diversified. In the short term, the impacts of monetary policies on different stages of market were different. In rising time of stock market, the monetary policy was effective while the interest rate policy was invalid. But in declining time of stock market was opposite, the interest rate policy was effective while the monetary policy was invalid. The results have relationships with unreasonable investor structure and irrational investors’ behaviors in our stock market, the deeper reason was that China’s capital market and monetary market been artificially separate restricted the impacts of monetary policy on the stock marketAccording to the analysis about the reasons of empirical results, we put forward some specific and operable suggestions from the point of monetary policy, investor structure, investor education and the integration of financial markets. These suggestions are aimed at improving the impacts of our monetary policy on the stock market, but they also provide references for the further development of China’s financial markets.