A Theory Simulation Of The Dependence Between Monetary Policy And Asset Pirces And Its Dynamics Relationship Analysis

The typical facts of before the outbreak of financial crises have experienced hugeasset prices volatility verified the important role of asset prices volatility played in thefinancial crisis. There is no doubt that frequent asset prices volatility hit real economicstability and financial stability, triggered a systemic financial crisis and rapid declinein the real economy, the traditional monetary policy has been questioned. Thus, therelationship between monetary policy and asset prices has become the forefront of theacademic issues. Many domestic and foreign scholars have studied this problem indetail. Earlier studies in domestic mostly based on granger causality test and vectorautoregression method analyzes the relationship between monetary policy and assetprices from the empirical angel, these studies draw non-unanimous conclusion.However, with the development of economic theory and its model, simpleeconometric model is difficult to solve the problem of economic sense of expectationand identify constraints. Research to re-examine the prior views are necessary, withthe deepening of interest rate liberalization process and the rapid development ofcapital market in China. Therefore, based on the fully absorb and draw lessons fromthe early studies in related areas, under the new historical background, this article willuse new Keynesian dynamic stochastic general equilibrium model analyzes therelationship between asset prices volatility and monetary policy from theoretical angeland use time-varying parameter vector autoregressive model analyzes the dynamicrelationship between them from empirical angel.Today, the dynamic stochastic general equilibrium model is a very importantanalysis method in the field of macro financial. At the same time, as an effectivesupplement to the original real business cycle model, theDSGEmodel has been usedin monetary policy in a number of developed countries. In our paper, to build the newKeynesian DSGE model in line with China’s national conditions, we refer to themodel framework of Smets and Wouters (2003), and make appropriate improvementsto the model. Meanwhile referring to the research idea of Ida (2011), we use “Tobinq” instead of asset prices. We get the optimal basic conditions by maximizingexpected utility or profit of micro-economic subject, then to logarithmic linearizationfor optimal conditions, introduced the Taylor rule equation of logarithmiclinearization on behalf of the monetary policy operation criterion, thus we obtainlinear rational expectations equation which on behalf of the dynamic equilibrium ofthe entire economic system. Finally, we use quarterly China real output gap,consumption gap and inflation gap from1996:Q1to2013:Q4as observable variables,and based on Bayesian statistical inference method to estimate the parameters oftheDSGEmodel. Results confirm that the model constructed in this paper is structuralmodel which could avoid Lucas critique, then illustrating the robustness andreliability of the results of simulated impulse response function.Impulse response function can comprehensive reflect the dynamic behavior andcharacteristics of theDSGEmodel variables when encounter exogenous shocks. In ourpaper, the economic system in addition to include the basic shocks appeared inexisting literature, asset prices volatility shocks and monetary policy shocks alsoincluded in it, accordingly, based on the estimated parameters of DSGEmodel, weobtain the impulse response function of asset prices volatility shocks on monetarypolicy objectives and interest rate, meanwhile, the impulse response function ofmonetary policy shocks on asset prices can be obtained. Results show that asset pricesvolatility impact long-term stability of the real economy and the general price level;there are synchronization dependence between interest rate and asset prices, positiveinterest rate shock will cause immediate decline in asset prices, asset prices haveimmediate positive impact on interest rate; interest rate is a powerful monetary policyregulation and control tool, under the framework of interest rate rules, asset prices canmake a full and timely response to policy, interest rate can guide it return toequilibrium state in a short period of time.Finally, we use real estate prices gap, output gap, inflation, the7-day effectiveinterbank interest rate and stock prices gap, output gap, inflation, the7-day effectiveinterbank interest rate etc. two sets of variables build two TVP-VAR model,based ontime point impulse empirical Analyzes the dynamic relationship between volatility ofasset prices and monetary policy in China. For different economic periods, based ontime point impulse function, we explore whether the impact of asset prices fluctuationon the monetary objectives is consistent, if there have time-varying characteristics for response of asset prices volatility shocks on interest rate, whether interest rate canaffect asset prices and if there have time-varying characteristics for its regulationeffect. The empirical results show that the impact of asset prices volatility on outputand inflation have significant time-varying characteristics, this effect has becomeincreasingly prominent; with the continuous development of capital market size, theresponse speed, degree and duration of asset prices volatility shock on interest ratesshows significant change, central bank is gradually strengthened focus on asset pricesfluctuation. The effect of China’s monetary policy for the regulation of asset priceshave significant time-varying characteristics, reverse regulation effect of interest rateson real estate prices has become more effective with the deepening of interest rateliberalization; however, the negative regulation effect of interest rates on stock priceshas certain lag, in the short-term, stock prices have a unconventional positive responseto the positive interest rate, in the medium to long term, interest rates have asignificant negative impact on stock prices.In summary, asset prices fluctuation affect the long-term stability of the realeconomy and price level. For stable asset prices volatility, interest rate is a powerfulpolicy tool. China should further promote the reform of interest rate liberalization andspeed up the financial market reform. To improve the regulation mechanism of theinterest rate on asset prices is inseparable from synchronized advancement offinancial reform.