A Study On The Interaction Between The Tools Of China’s Monetary Policy And Stock Price

The stock market initially originated in the United Stateshas a history ofmore than 200 years.The rapid development of the stock market is a double-edged sword.On the one hand,it makes investment and financing more convenient,promotes the optimal allocation of resources and pushes forward the development of the macroeconomic.On the other hand,the violent fluctuation of the stock price also can be harmful to the development of the macroeconomic,which brings some challenges to the monetary policy.Therefore,it is very important to study the relationship between the monetary policy and the stock price.At the beginning of 1990s,China began to establish the stock market,after more than 20 years of development,we have made remarkable achievements.We also faced many challenges during this period.The stock market capitalization of Shanghai and Shenzhen Stock Exchange evaporated nearly 70%in the financial crisis of 2008.In June 2015,the stock market suffered heavy losses.The government has repeatedly taken some measures to rescue the stock market,but which did not play a due effect.This leads us to ponder:in our country,if there is a mutual influence relationship between the monetary policy and the stock price,if there is the relationship,how to influence each other.In this paper,we want to make a detailed analysis to clarify the relationship between the monetary policy and the stock price,so that the monetary policy can better serve the development of the economy.In order to study the relationship between the monetary policy and the stock price,this paper mainly uses the structural vector autoregression(SVAR)model.Variables include the money supply,interest rate,the closing price on of the Shanghai Composite Index and Shenzhen Component Index,the Gross National Product(GDP)and the consumer price index(CPI).First of all,the stability test results show that the original data is not stable but the first order differential is stationary.Second,cointegration test results show that there is a long-term equilibrium relationship between the monetary policy and the stock prices.However,the Granger causality test results indicate that there is no complete bidirectional causality between the monetary policy and stock prices.Third,the results of impulse response function and variance decomposition method show that the interaction between monetary policy and stock price is not obvious,the changes in monetary policy will not bring a great change to stock price.In the paper,I also analyze the differences between Shanghai Composite Index and Shenzhen Component Index,the relationship between Shenzhen Component Index and monetary policy is more significant.The measurement software is Eviews 7.In this paper,the structure is divided into the following four parts:The first part,introduction,which introduces the research background and the significance of the topic,expounds the research content and method,and points out the innovations and deficiencies.The second part,theoretical analysis,which describes the relationship between the monetary policy and the stock prices theoretically.Firstly,analyzes the theoretical basis of the effect of monetary policy on stock price.Secondly,explains the monetary policy transmission mechanism of the stock market.At last,analyzes the relationship between money supply and stock price,interest rate and stock price.The third part,empirical analysis,studies the interaction relationship between the monetary policy and stock price through the econometric methods,such as the stability test,cointegration test,establishing SVAR model,Granger causality test,pulse response function and variance decomposition.The fourth part,conclusion and suggestion,draws a conclusion through the theoretical analysis and empirical analysis,gives the relevant recommendations to ensure the effectiveness of monetary policy,promotes the healthy development of the stock market,and protects the interests of investors.The main innovations of this paper may conclude the following points.In the first place,the SVAR model is used to study the interaction between the monetary policy and the stock price.Most of the existing literature is based on the VAR model lacked of economic theories to study the interaction,so the conclusion may be inconsistent with the reality.In the second place,this paper will do a detailed analysis about the comparison of the differences between Shanghai and Shenzhen composite index.In addition,a more prominent place in this paper is the typical data.The stock market has experienced two times of ups and downs in 2001-2005,in which monetary policy also got the inspection,so this analysis is representative and summary.Although this paper have made some progress on this problem,there are still some shortages about this problem.First,in terms of variables,the selected variable is not sufficient,without taking into account many factors.Second,in terms of data,this paper does not choose the data from 1990,which only selects part of the date to analyze,so the overall will be weakened.