The Impact Of China's Monetary Policy On The Volatility Of Shanghai Composite Index

As an important part of the modern economy and society, stock market plays an important role in promoting economic development. Since 1990 the establishment of the Shanghai stock exchange, China's stock market has made great progress. But the stock market compared with the developed countries, ours is not mature enough and volatility is a common phenomenon. Monetary policy, as an important tool of government regulation of the stock market and important reference for stock market participants' economic behavior and decision-making, its impact on the stock market volatility catches attention of scholars at home and abroad.This study takes the Shanghai Composite Index closing price from January 4, 2006 to May 31, 2015 as the research object. At this time, China stock market has experienced a complete cycle, and the government tended to use monetary policy to stabilize the stock market and promote the development of the stock market. So at this time, the impact of monetary policy on the stock market volatility has certain practical significance.This paper applies the EEMD method to decompose Shanghai Composite Index into low frequency sequence long-term fluctuations and short-term fluctuations in the stock market, the stock market on behalf of high-frequency sequence. Then the high and low frequency sequences are obtained based on EEMD decomposition, according to two aspects of monetary policy impact on the stock market volatility, the first aspect is the use of threshold autoregressive model(TARCH model) analysis of the impact of the reserve rate adjustment tools of monetary policy in the short-term fluctuations in the Shanghai Composite index, the empirical results show that: without considering the reserve rate the adjustment factors, different stages of the stock of non symmetry are different, early data(2006/ 1/4-2013/12/31) showed anti leverage effect, and the latter(2014/1/2-2015/5/31) showed a leverage effect. In consideration of the reserve rate adjustment factors, the reserve interest rate adjustment of the Shanghai market(2006/1/4-2007/10/16) is the impact of short-term fluctuations in the market(2007/10/17-2008/12/31), but had significant effect in short-term fluctuations.The second aspect is the analysis of VAR model of monetary policy instruments in the money supply M2 growth rate and the interbank interest rate on Shanghai long-term fluctuation of impulse response and variance decomposition. The impulse response results show that interbank interest rates and money supply growth rate of M2 are different for the long-term fluctuation of Shanghai Composite index. The variance decomposition shows that Shanghai long-term fluctuations impact mainly stemming from their own. Besides, the interbank interest rate variance contributes to Shanghai long-term fluctuations than to the money supply M2 growth rate.