Monetary Policy And Stock Market

With the stock market continues to deepen development. There are a lot of diversified transmission channels for monetary policy,and and monetary policy face a a challenge to the formulation and implementation.What the relationship is between monetary policy and stock market, how monetary policy affects stock market, whether there is an interaction between monetary policy and stock market, whether monetary policy should react to stock market, This article will focus on the problem to be solved following this line of thought. This paper use DSGE model with Chinese data and Bayesian methods to study the relationship between monetary policy and stock market.Firstly,this paper empirically study the impact of monetary policy and money on Chinese economy using the Ireland (2004) model framework,the emphasis on commercial banks, credit friction, and the monetary factors impact on the Chinese economy. We found that money shocks explain most of the vast majority of China’s real output change and the impact of money on the economy is very significant. Subsequently, we study the volatility of the stock market in China, the relationship between risk and return are tested again. This paper use the Shanghai and Shenzhen Composite Index five minutes high-frequency data in2005-2011to test the leverage effect and the volatility feedback effects. The multiscale wavelet analysis method is used to test the leverage effect of stock market. We find that returns have a significant negative leverage effect impact on volatility in the small and medium-scale, and returns have a significant positive leverage effect impact on volatility in the large-scale. It can be seen the significant leverage effect of China’s stock market in the short and medium term. Returns play a positive role on volatility feedback effects in the long run. This paper further test volatility feedback effects.We find the expected volatilities have a positive impact on returns, and the unexpected volatilities have a negative impact on returns. Using Nistico(2012) model framework,this paper empirically study relationship between monetary policy and the stock market with Chinese situation. We consider money,commercial banks and credit friction,which improve monetary policy transmission channels.We use this model to study the relationship between monetary policy and stock market deeply.We find that the impact of monetary policy on stock market is very significant, while stock market is a very small impact on the monetary policy. Further studies show that the impact of macroeconomic variables on stock market is very significant, while stock market has less impact on macroeconomic variables. Studies suggest that China’s stock market has a the economic barometer role, but the role is limited effect. In order to further study the relationship between monetary policy and stock market.With the estimated model,we find that China’s stock markets have a certain impact on monetary policy, monetary policy to make certain changes in the stock market reaction, the researchers believe that China’s monetary policy should concerned about the change in monetary policy, instead of staring at the changes in the monetary policy. For studying relationship between monetary policy and the stock market deeply, Using the Gali and Monacelli (2005) model framework, we empirically study the relationship between monetary policy and stock market in an open economy environment. Globalization today, China’s economy has been inseparable from the development of the world economy, in the open economic environment to study the relationship between monetary policy and stock market has profound practical significance. In this case, the study further found that the impact of monetary policy on the stock market is still very significant, the stock market is still weak impact of monetary policy. In addition to macroeconomic variables affecting the stock market is very significant, changes in foreign output has a significant impact on the stock market. Finally the study found that under conditions of optimal monetary policy, monetary policy should focus on changes in the stock market, stock market have a certain impact on monetary policy. Studies suggest that on the one hand the central bank should be concerned about the changes in the stock market, but do not need to stare at stock market. Central bank can indirectly affect stock market through the impacting on macroeconomic. On the other hand, the impact of monetary policy on the stock market is very significant, so the central bank should deepen financial reform, to ensure the stability of the financial markets.