Analysis Of The Price Linkage Mechanism And Its Effect Between China’s Money Market And Capital Market

The relationship between the money market and the capital market has been the focus of China’s reform of the financial market. From the normal linkage between the money market and the capital market, money market rates once change, make the capital market capital flows also changed, which affecting the stock price. But from the specific data in recent years, relationship between the changes of China’s stock price and interest rate in money market seems not too strong, which led to my attention to the price linkage mechanism and its effect between China’s money market and capital market. And in recent years, with the advancement of marketization of interest rate and stock market, the price once again become a hot topic in our country, Therefore, based on in-depth analysis of the price linkage mechanism and its effect between money market and capital market, the intension of my study is to provide theoretical and empirical basis for the reform of China’s financial market according to the price linkage between money market and capital market.Based on the theory of financial development and literature at home and abroad, and starting from the basic theory of monetary market and capital market linkage, the paper examine the linkage of United State,Japan, German’s money market and capital market and then discuss the price linkage mechanismand and its effect between China’s money market and capital market. In the empirical part, using interbank borrowing market and bond repurchase market as the representative of the money market, the stock market stand for the capital market, selecting three sub market daily price as the research variables. Based on data index vector autoregression, granger causality test, generalized impulse response function and variance decomposition analysis, the empirical results show that the fallinga(rising) of interest rates in money market will lead to the increasing(falling) in the prices of capital market, rising price of capital market will lead to the rising of interest rates in money market. But this relationship is not obvious, price linkage relationship between money market and capital market in China remains to be improved. On the basis of the above empirical results, this paper analyzes the causes of this result and refers to policies and measures which developed countries taken on the issue of money market and capital market. Finally the paper puts forward the policy suggestions, such as reducing the money market and the capital market’s access threshold gradually; promoting the development of multi-level financial market actively; clearing the connection channel between capital market and monetary market; promote the process of marketization of interest rateand so on.