The Effect Of The Rise Of China’s M2/GDP Ratio On The Asset Price

Since the reform and opening up, China’s M2/GDP ratio continues to rise. The ratio is not only much bigger than other developed countries, but also far above other bric countries which have the similar situation to our country. As a representative of the physical assets in China, the real estate price has experienced a sharp increase. As a representative of the financial assets, the stock price has reached a historic peak at the same time. So the question whether the rise of M2/GDP ratio causes a rise in asset prices or not will have a important practical significance.Based on theoretical analysis, the author use the metrology model to study the relationship among the ratio of M2/GDP, real estate climate index and Shanghai composite index from the year of 2003 to 2015. The research methods including ADF test of unit root, vector autoregressive model, cointegration test, granger causality test and Impulse response function.In the previous empirical studies, most scholars have chosen the level of M2/GDP. However, M2 is a stock concept, GDP is a flow concept. There is a big controversy on measuring the excess liquidity by using the ratio of flow and the stock. The author takes the logarithm of M2/GDP which finally becomes the difference between M2 growth and GDP growth as a index of measuring excess liquidity. By this way the author solve the issue that there is nothing comparable between stock concept and flow concept.The prediction results indicate that exist cointegration relationship among the ratio of M2/GDP, real estate climate index and Shanghai composite index from the year of 2003 to 2015. When the ratio increased, there will be a positive impact on stock price index and real estate price index. Compared with stock market, the real estate market is more significantly affected by the increasing of M2/GDP. On the relationship between the real estate market and the stock market, this paper has a conclusion that stock price changes is the granger cause of real estate price changes. Because of stock market wealth effect, the rise of stock prices can promote the development of the real estate market. Meanwhile, the real estate price has a negative impact on stock price. The wealth effect of the real estate market is not prominent. Finally, on the basis of the empirical conclusions, the author has listed the following suggestions. The government should transform the way of economic growth and strengthen the validity of fiscal policy. When setting monetary policy, the government should be fully considered the liquidity fluctuations and asset prices. When implementing macro policy, the monetary authorities should take into overall consideration the correlation between stock market and the real estate market. Besides, the government should establish and improve the financial risk monitoring and early warning system, complete the channels of capital investment...