Governance Of Stock Bubbles Based On Combination Of Monetary Policy And Macroprudential Policy

The collapse of financial markets and the recession of regional economy resulted by stock bubbles frequently happen during recent 30 years. The stock bubbles governance is increasingly being a focus attracting governors, scholars and investors’ attention. Especially after this international crisis, more and more western scholars reintroduce the Ex ante Leaning Against the Wind monetary policy into stock bubbles governance to ensure the stability of financial markets and the health of economy. However, the concept of Leaning Against the Wind could deviate our study from the presupposed goal, further leading to severe economic fluctuation and incalculable social loss. In view of above-mentioned reasons, it is not reasonable to separately adopt “Lean Against the Wind” policy in the study of stock bubble governance.For complementing monetary policy’s role in the governance of the stock bubbles and defects of financial institutions supervision system, macroprudential policy aiming at controlling credit cycle and reducing the hazard of stock bubbles risk is obtaining more and more recognition from financial governors and scholars. However, even self-contained in governing stock bubbles, the macroprudential policies are not able to govern stock bubbles effectively for check from the monetary policies. Therefore, the effective governance of the stock bubbles must be the result of combination of macroprudential policies and monetary policies.This paper constructs a DSGE model including the stock bubbles, macroprudential policies and monetary policies based on the relevant research to analyse effect of governing stock bubbles by using macroprudential policies and monetary policies. The results show that:The DSGE model which contains endogenous stock bubbles, macroprudential policies and monetary policies can fit the actual data of Chinese market.The calibrated DSGE model can better fit the Chinese stock market and the macro economy actual data, overall, DSGE model constructed in this paper can provide a reliable basic model for research of governing stock bubbles by using monetary policies and macroprudential policies. Although part of the macroeconomic data fitting degree is not ideal, especially the economic indicators of investment scale, the empirical analysis also reflects that: Chinese monetary policy transmission efficiency is low, listed company financing investment efficiency is low and the stock market is not mature.Although characterizations of sentiment shock and the banking sector overlapped, the sentiment shock is still the dominating factor of stock market volatility. Unlike the results of foreign research, sentiment shock is not able to explain output and investment fluctuations well. Monetary policy shock is not able to influence the fluctuations of actual data significantly, but the macroprudential policy shock can cause a significant impact on stock price fluctuation, output fluctuations and investment fluctuations.Only by combining monetary policies and macroprudential policies, the governance of stock bubbles will be valid. The use of monetary policy or macroprudential policy alone will produce unnecessary policies and economic costs.