Research On Dynamic Correlation Between China’s Asset Price Volatility And The Federal Reserve’s Quantitative Easing Policy Adjustment

Under the background of financial deepening, the scale and speed of the global capital flows have been significantly increased, the transmission mechanism of risk between the economic subjects has been become more and more complicated. In particular, the quantitative easing monetary policy, implemented by the Fed(Federal Reserve System), has dominated changes of the international financial environment. Frequent policy operation could apply spillover impacts on the economy of our country through several channels, which included exchange rate, interest rate, and policy signal. Notably, financial markets behave faster than the substantial economy, at the same time, severe market reaction could often enlarge the vulnerability of economic system, and affect the process of our economic reform. Therefore, doing research on the impact of the international financial environment changes on the stability of the financial market of our country, can not only strengthen the ability of digesting internal and external impact, enhance the level of controlling systemic risk, such as macroeconomic regulation and control ability, but also improve our economic environment for financial reform, which has great guiding significance in raising the efficiency about resource use and structure optimization of national economy.Related research generally adopt the asset price volatility index to reflect the overall financial market stability, which can be used as a prediction market the leading indicator of risk. The interpretation of Traditional theory on asset price volatility, is confined to a closed economy system, failing to consider the external economic environment change on the impact of the financial market in C hina, in addition, many of the previous research just considered a factor in the open economic environment, such as exchange rate, short-term capital flows, studied the relationship between asset prices and one of the factors above, so they failed to set a major general of various factors in the economic system to examine asset price fluctuation influenced by such factors comprehensively. Given the current background of our country’s financial deepening, and the likely impact of the international financial environment, it has certain necessity of adjusting impact of the fed’s quantitative easing monetary policy on asset price volatility of our country into the analysis system.Specially, first of all, through estimating the volatility of Shanghai and Shenzhen 300 index, we identify the excessive volatility, which results show that the excessive volatility points focused on the initial and exit stage of Q E policy, and it reflects our financial markets possess certain sensitivity to external economic factors. O ur financial market has been affected by spillover effects to some degree, furthermore, the economic development of our country is quite sensitive to the international economic environment changes.Then on this basis, we make the international financial environment changes as the research object, in order to explore the fed’s quantitative easing monetary policy spillover effect on C hinese financial market, namely analyzing the fluctuation characteristics of asset prices after exposure to the internal and external impact under the background of the global economic environment. For TVP- SV- VAR model can break through limitation of the traditional VAR model about the assumption of a constant coefficient, and make a comprehensive consider about nonlinear characteristic of the system and variable time-varying characteristics, by which it can examine variables in different time, different pulse response lag period, this part adopts TVP- SV- VAR model to analyze the dynamic relation between asset price volatility and the quantitative easing monetary policy implemented by FED. The empirical results show that, QE adjustment has time- varying spillover effect to asset price volatility, which would causes sharp price fluctuation in the short term, but in the long term this effect could be gradually reduced. We must maintain keen vigilance in the aspects of appreciation of the RMB and the change of short-term capital inflows into our country, by which QE policy can change the international investor expectations of Chinese economic and investment behavior significantly, and exert complex influence on Chinese financial market liquidity, which leads the complex nonlinear characteristics of asset prices.