A Study On The Connectedness Between Real Economy And Virtual Economy

Financial development and the real economy are inseparable.In the report of the government work,it has been repeatedly mentioned that financial market ought to serve for the real economy.A healthy feedback mechanism between the virtual economy and real economy has a long-term effect on the economy.Based on the capital market sector indices dating from 1996 to 2016,this paper analyze the connectness between the real sector and the virtual sector by input-output table and rate of return network linkage,applying Gephi network visualization method.Further more,this paper uses the Pariwise Granger Causality test and the GARCH-in-Mean model to make an empirical analysis of the interaction mechanism between the real economy and the virtual economy in China,investigating their return and volatility interaction mechanism with the macroeconomic policies and microeconomic decisionmaking.The results are as follows:(1)The relationship between financial sector and real sector is asymmetrical,in which the financial sector has a significant spillover effect on the real sector while the real sector has a smaller spillover effect on the financial sector.(2)Although the return spillover from financial sector overwhelms the real sector,risk contagion is two-way between them.(3)Macroeconomic monetary policy is an important factor which affects the financial sector's return and volatility spillovers towards the real sector.Expansionary monetary policy increases the financial sector's return influence on the real sector while tight monetary policy leads to high risk contagion between them.(4)Corporate decision-makings including investment and financing decisions are important factors affecting the real sector's return spillover towards the financial sector.Positive investment and financing decisions increase enterprise dependence on the financial sector while working capital management decisions improves its independence.The study of this paper has certain policy guidiance significance.The regulatory authorities should establish a sound financial system to promote the development of the real economy,enhancing the competitiveness of the real economy.At the same time,the risk contagion of the financial and real economy should be effectively seperated and a long-term mechanism should be established.