Research On The Relationship Between Money Supply And Stock Price In China

At present, some countries still not eliminate the hidden trouble of sovereign debt crisis,the major developed economies further implement loose monetary policy,which makes the global liquidity increase rapidly and cause the asset price bubbles swelling,then increasing the difficulty of government macroeconomic regulation. How to improve the effectiveness of monetary policy and prevent the risk of asset prices fluctuations,becoming urgent problems for the central banks. Money supply as the intermediary goal of monetary policy has been widely accepted by all over the world.The central banks affect the capital market by adjusting the money supply. The stock market as an important part of capital market, is an important way for the central bank implement monetary policies. Therefore,the research on money supply between stock price has an important significance in theory and practice to improve the effectiveness of monetary policy.The article discusses the relationship between money supply and stock price, from both theoretical analysis and empirical analysis. First of all, analysizing the interact transmission mechanism between money supply and stock prices,and the current economic situation of our country.The article deeply analyzes the relationship between the Shanghai composite index of stock prices and money supply,by using econometric methods such as stationary test, cointegration test, granger causality test and VAR models,etc. The empirical research proofed that money supply and stock prices exists a long-term co-integration relationship.And special money supply M1 positively influenced the stock price. In addition, the difference between the growth rate of Ml and M2 positively related with the Shanghai composite index. Finally, since the interactive relations between money supply and stock prices, monetary policy should pay close attention to the stock market price fluctuations and use monetary policy flexibly to regulate the stock market.At the same time,to prevent asset price risk,we should further regulate the stock market and perfect the policy transmission mechanism of stock price.