The Impact Of American Monetary Policy On China's Stock Market

With the development of domestic financial market and the gradual strengthening of contact and synchronization with global financial market, the impact of the international political and economic environment on China's financial market is increasingly deepening. As the dollar is in the special status of global economy, and the Fed in essence acts as the "global central bank" role, the implementation of its monetary policy will undoubtedly change the dollar worldwide liquidity and asset pricing basis. However,unlike the impact of China's monetary policy on the domestic stock market, the impact of US monetary policy adjustment channel is more complicated. On the one hand, the US monetary policy affects the price of domestic equity asset by changing the global asset-based rate of return,on the other hand, it can hit China's domestic stock market through short-term capital flow, and in the long run, it can affect the domestic economy through the exchange rate, bulk commodities, import and export trade and other channels,and indirectly affect the profitability of listed companies to change the financial statements of listed companies. Taking it into account that the United States has entered a new round of interest rate cycle, the Chinese central bank will also carry out the policy game and the introduction of the corresponding monetary policy. Therefore, the present study on the impact of the US monetary policy on the domestic stock market is of certain practical significance.The impact of American monetary policy on China's stock market is analyzed in this paper by applying the empirical analysis and the analytical framework of the new Keynesian model. The former analysis mainly explores the impact of changes in the US federal fund rate, the money supply (M2) and the US deposit reserve on the domestic stock market. It proves that the monetary policy has certain impact on the risk level and liquidity of stock market ? and the impact on the yield is small. It also shows that the impact of US monetary policy on China's economy is mainly through the capital flow,and the role of interest rate channel is lower. On the other hand, taking into account the limitations of empirical analysis, and in order to analyze the impact of monetary policy,an open economy of the new Keynes model is established in this paper. Based on the wealth effect of the stock market, the youth permanent model, the crossed pricing model and the Taylor rule and so on, this model analyzes the impact of the US monetary policy interest rate hit on the stock market. Impulse response shows that, in equilibrium, the economy is subject to an external interest rate of positive impact, which will lead to a decline in output, and output gap decreases, and CPI will decline, but the stock market will present a positive performance. When the random hit has a negative impact on the interest rate, the interest rate will decrease, which will increase the consumption, expand the output and enlarge the output gap. Due to the driven force of domestic and international consumption , the terms of trade can be improved. The commodity price is rising, and the inflation is picking up, and the requirement of investors' risk premiums on stocks is higher, and the stock return reduces. The result of impulse response is fitting better with the real economy. The analysis shows that the US monetary policy has a significant spillover effect on the Chinese stock market. Therefore, it is necessary for the policy makers to speed up the reform of the financial market and promote the internationalization of the RMB and the financial market development simultaneously and coordinate with each other. This will help reduce the external capital shock. For the investors, they should also actively pay close attention to the changes of foreign economic policy and do a good job of risk response.