Asset Price Fluctuations And Monetary Policy Reaction:A Study Of The Mechanism And The Monitoring

Due to the rapid economic growth over the years after the reform and opening up, China has become the world's second largest economy. As a result,the level of income has substantially increased and the residents have greater ability and desire to purchase assets.Consequently, the society and the economic system have gathered a huge wealth of assets,which further impove the sensitivity of economic system on asset price fluctuations. Under this context, any large fluctuations in asset prices may damage the path and process of China's economic transformation and upgrading. Monetary policy, as one of the most important macro-control measurements, is an important tool for motoring and regulation asset prices.Furthermore, the key for reasonably monitoring the fluctuations by using monetary policy instruments is the understanding of the functional mechanism between monetary policy and asset price fluctuations.In this context, the thesis, according to the logical idea of "formation mechanism?fluctuation characteristic?driving factor?influence mechanism?reaction mechanism?monitoring mechanism?policy proposal", explores the relationship between asset price fluctuations and monetary policy reactions,aiming to set up a more systematic analytical framework of asset price and monetary policy. On the basis of reviewing the literature, this thesis analyzes the formation mechanism and characteristics of asset price fluctuations,answering the question of "what" are the asset price fluctuations. The thesis then theoretically analyzes the impact mechanisms of asset price fluctuations and monetary policy on each other and empirically tests the mechanisms from the frequency and non-linear perspective,answering the question of "why" the monetary policy respond to fluctuations in asset prices.Finally, this thesis constructs the reaction and monitoring mechanism of monetary policy to asset price fluctuations, and puts forward some policy suggestions, answering the question of"how" monetary policy should react to asset price fluctuations.This thesis, based on labor theory of value, first explains the logical basis of asset price fluctuations,and then introduces asset price into "multiplier-accelerator" model to explore the mechanism of asset price cycle fluctuation. The research shows that asset value is the basis of asset price, and supply and demand is the external reason for the short-term changes in asset prices, and market effectiveness, speculative bubbles, asset shortages and the business cycle are the main factors affecting asset prices. At the same time, this thesis, by using the Markov regime-switching threshold GARCH model, analyses the fluctuation characteristics of asset prices. The results show that the asset prices present approximately normal distribution in the low fluctuation stage, and in the high fluctuation stage, shows different levels of sharp peak and fat tail features and leverage effect. In addition, this thesis uses the rolling window causality approach and spectral analysis method to explore the wheel relationship and the cycle linkage effect between asset prices. The results show that after 2006, the wheel effect among stock price, house price and exchange rate is significantly enhanced, and that correlations at different frequencies are significant differences.Based on the analysis of the mechanism and statistical characteristics of asset price fluctuations, this thesis elaborates the relationship between asset price fluctuations and monetary policy. This thesis divides the channel through which monetary policy affects asset prices into direct and indirect channels, and uses the intermediary effect approach for empirical test. The research shows that MO does not have direct and indirect paths that affect asset prices, M1 has a direct effect on the exchange rate and commodity price, M2 has a direct effect on house price and commodity price, and the interest rate has direct and indirect effects on exchange rate. This thesis then uses the frequency-domain causality and Markov regime-switching VAR to check the non-linear effects of monetary policy on asset prices. The results show that the impact of different monetary policy variables on asset prices is greatly different in different frequency domains, and monetary policy has weak ability of curbing house prices. Meanwhile, this thesis constructs the IS-LM-AB model that includes the equilibrium of the asset market, and theoretically analyzes the influence mechanism of asset prices on monetary policy variables. The results show that, on the condition of exogenous asset price, asset price fluctuations affect monetary policy rates mainly through the consumption and investment channels, while in the case of endogenous asset price, the impact of asset price fluctuations on monetary policy is uncertain. Then, this thesis constructs a small-sized macroeconomic system. The scenario analysis shows that variations in stock price lead to changes in monetary policy through the wealth effect channel, whereas house prices affect monetary policy mainly through the investment channel. Additionally, this thesis uses the quantile impulse response function (QIRF) to examine the non-linear effect of asset prices on monetary policy. The results show that the impact of asset prices on macroeconomic variables and monetary policy variables is significant in depressions, while insignificant in stationary periods and uncertain in booms.Based on the analysis of the relationship between asset price fluctuations and monetary policy, this thesis constructs the reaction functions with symmetric preference and asymmetric preference that include asset price factors and empirically study the reaction functions using a time-varying weighted asset price condition index. The results of quantile regressions show that the interest rate rules pay more attention to the asset prices and the inflation in the tightening period. With the increase in quantile, the impact of monetary policy on inflation,output and asset prices is weakening. The results of frequency-domain regressions show that short-term, small-sized monetary policy changes are not caused by short-term, small variations in economic variables. At the low frequency, interest rate and M1 are sensitive to output and asset prices and M2 is more correlated with inflation and output. The results of the non-linear preference reaction function show that the central bank's loss preference is symmetrical for quantity-based rules, while asymmetric for price-based rule.Finally, this thesis constructs the risk early warning model and daily monitoring mechanism of asset price fluctuations and detects the time-varying lag and intensity of monetary policy on asset price. The results show that the early warning model correctly predicts the occurrence of the crisis with the probability 73.41%, while the model correctly predicts the not occurrence of the crisis with the probability 67.07%. The time lag of monetary policy on stock price, exchange rate and house price is short, and it is fixed, but the time lag on commodity price is relatively longer, and presents the time-varying characteristic.Additionally, the impact of monetary policy on the four asset prices shows a decreasing trend.Then, this thesis adopts the generalized sup ADF method to measure the asset price bubble and constructs the discretionary monetary policy adjustment strategy, which has the flexibility of discretionary policies and the smoothness of rules. In addition, this thesis puts forward the specific policy suggestions from the aspects of improving the efficiency of pricing and the effectiveness of monetary policy management, constructing new monetary policy adjustment strategy and asset price monitoring mechanism.