A Study On The Relation Between Monetary Policy And Asset Prices In China

After the financial crisis in 2008,central banks in many countries have stepped up its efforts in macro regulation and control.,the prices of asset like real estate and stock is closely related to national economy,and the burst of real estate and stock bubble has ditectly triggered economic crisis many times,so central banks always pay close attention to asset prices,and the stablitity of asset prices is one of the most important object of central banks' monetary policy.Conducting a comprehensive study for the relation between monetary policy and asset prices,this thesis try to answer three questions: “how does monetary policy has effect on asset pricess”,“how does the fluctuation of asset prices has effect on monetary policy” and “how should monetary policy respond to fluctuation of asset pricess”.This thesis studies the relation between monetary policy and asset prices from both theoretical and empirical aspects.In theoretical aspect,this thesis first studies the influence of monetary policy on asset prices: money supply and interest rate,two intermediate objectives of monetary policy,do have effect on asset prices,the increasement of money supply will lead to higher asset prices,yet the increasement of interest rate will lead to lower asset prices.Secondly,the author studies the influence of the fluctuation of asset prices on monotary policy: the fluctuation of asset prices have impact on the money supply,one of two intermediate objectives of monetary poicy and econemic growth and inflation,the ultimate objectives of monetary policy.In empirical aspect,this thesis uses four monthly data from 2008-2016—m2,loan rate over five years,the average price of the country's commercial housing and the Shanghai composite index as the variables that represent monetary policy and asset prices.The empirical analysis mainly base on vector autoregression model(VAR),and use multiple eonometrics methods such as ADF test,Johansen cointegration test,Granger causal relation test,impulse response function and variance decomposition,the results show that there is a long-term and stable relation between the variables of monetary policy and the variables of asset pricess,which not only verify the results of theoretical analysis,but also refine them and find something new.The study shows that there is some interrelations between monetary policy and asset pricess.Specifically,monetary policy have significant impact on asset prices,money supply has a greater impact on real estate price,while interest rate have a greater impact on stock price.Changes of asset pricess will have an impact on the money supply,but have no effect on interest rates,besides the change of asset pricess will have influence on economic growth and inflation,two ultimate objectives of monetary policy.In addition,this paper argues that the central bank should pay close attention to the fluctuation of asset prices when making monetary policy,but should not regard it as the main target of macro regulation and control.There are two innovations in this thesis: first,it considers both the influence of monetary policy on asset pricess and the influence of asset pricess fluctuation on monetary policy,so it studies the relation of monetary policy and asset prices more comprehensively and systematically;Secondly,the variable selection in empirical analysis is novel and resonable,futhermore,the datas is relatively new and spans larger.