| A stable demand function of money is one of the important conclusions of modern quantity theory of money. However, since the 1970s this concept has been denied by some scholars such as Goldfeld. Moreover, they rose up that the development of stock market and the financial innovation has changed the population's assets structure, and influenced the long term trend of the demand for money. Based on it, this paper firstly analyzes the long term changeable trend in the demand for money and presents the reasons with the process of monetization and capitalization. Secondly, the stock market will be selected as the object of the study so as to analyze the impact of stock market on currency demand. On one hand, the trade of stock should rely on currency to complete, in this way the appearance of stock brings up the demand of currency trade need; on the other hand, as the high return asset, stock will replace currency as storage of value, so the development of stock market reduce the need of currency asset portfolio. Overall the influence of stock market on demand of currency is uncertain. Based on theoretical analysis, this paper utilize Johansen cointegration analysis and VEC model to analyze the influence of stock market trade effect on transaction money for demand as M1, and the influence of overall stock market portfolio effect on demand of money as M2. The facts prove that stock market trade effect has direct correlation with the existence of M1, the coefficient is 0.03. While stock market portfolio effect does not have obvious correlation with M2, which indicates stock market does not have obvious effect on the overall currency demand. But considering the stock market trade effect's positive influence on transaction currency demand M1, the stock market's substitution effect on currency exists indeed. According to above theoretical and empirical analysis, the essay provides suggestions on policy: firstly improve the stock market settling system, and reduce stock market fluctuation's influence on currency demand. Secondly, improve the financial market efficiency to urge the corporations to conduct financing through stock market directly, to reduce the corporation's dependence on credit loan. Thirdly, the emergence of stock market makes the currency demand function unstable, weakens the effectiveness of monetary policy, which regards the supply of money as intermediate object, meanwhile due to investor's concern on the rate of asset return, interest is the more suitable intermediate object for monetary policy. |
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