The Nonlinear Effects Of Monetary Policies On Stock Market

Since the Shanghai Stock Exchange and the Shenzhen Stock Exchange established, China’s stock market has experienced 20 years of development, played a huge role in the financing function, regulation and signaling functions, and has been becoming a very important part of the capital markets. With the steady improvement of China’s market economic system, the role of the stock market in the national economy will grow. Research on the impact of monetary policy on China’s stock market has important and practical significance; the paper combines theoretical and empirical methods to study this question.Firstly, the paper theoretically analyzes the impact of monetary policy on the stock market. Monetary policy has been introduced, including monetary policy objectives, monetary policy tools as well as monetary policy features. Then the paper analyzes the monetary policy interest rates, money supply and credit, and the transmission mechanism in the stock market. The paper analyzes the relationship between the stock price and interest rate model, the effect of interest rate mainly through the substitution effect of capital, the effect of transaction costs, the accumulation effect and cost of capital effect to have an impact on the stock market; then analyzes the money supply and stock prices relations theory model, money supply mainly through the combined effects of asset inflation effects to have an impact on the stock market; then analyzes the impact of credit on the stock market; and finally analyzes asymmetric influence of monetary policy on stock market,. This analysis mainly based on the theory of unintended symmetric and asymmetric effect on the credit channel effects.The paper introduces the Smooth Transition Regression Model used here, mainly includes the basic form of the model, two common models that LSTR model and ESTR model and its form, the differences and similarities of the two models and the parameters of the model estimation and correlation test. The main test method includes no residual autocorrelation test, no additional testing and parametric nonlinear stationary test. Further analyzes the applicability of the STR model in research of asymmetric monetary policy research on the stock market.The last part of the paper is the relationship between monetary policy and stock market, the empirical research and conclusions. The paper introduces the process of establishing of the STR model, testing methods and the selection of relevant variables and data, and uses LSTR model to find that monetary policy has a non-linearity effect on the stock market. In the linear part of the model, the growth rate of money supply and loan growth is not significant, the actual interest rate and deposit reserve ratio is significant, so in the linear part, the effective interest rate and deposit reserve ratio will impact stock returns. Non-linearity part of the model contains a conversion function and linear regression, the real interest rate and deposit reserve rate are still significant, money supply growth and loan growth are still not significant, so in this part, the actual interest rate and deposit reserve ratio have nonlinear effect on stock returns. Overall, whether linear or nonlinear partial section, the deposit reserve ratio coefficient is negative, indicating that the deposit reserve ratio has a reverse effect on stock returns. For the real interest rate, in the linear part, it has an positive effect on stock returns, in July 2007 to December and January 2008 to mid-July, China’s stock market transfers from bull to bear market stage, In the stage, the stock market crash, serious inflation, real interest rates turned negative. In non-linearity part, the effective interest rate yields has the reverse effect on the stock, real interest rates will reduce stock returns.