Financial Asset Inflation In China And Monetary Policy Coordination

In the past 20 years, the central banks have made great achievement in controlling the inflation of ordinary goods and services. But frequent fluctuation of financial asset prices, as well as several systemic financial crisis and economic depression caused by the collapse of financial asset markets, have forced the central banks to research deeply the information conveyed by the financial asset price inflation, and to resolve it. Financial asset inflation has great impact on monetary policy of China. This paper aims to basically answer the question of why and how financial asset price should be a reference parameter for monetary authorities' judgment.The first chapter explain the concept of financial asset inflation. The second chapter elaborates the impact that financial asset inflation has on the monetary policy. The third chapter discusses and analyzes the interrelationship between asset price and real economy in China by a new model that involved financial asset and an empirical research based on data of China. The third chapter is also the innovation of the paper. The fourth chapter is the core sector of the whole paper. It firstly introduces two entirely different views on whether financial asset price should be the target of monetary policy, then based on analysis of China's monetary regulation system and the marginal control over financial asset inflation, finally the author comes up with the opinion that financial asset price should not be a reference parameter for China's monetary authorities' judgment system.This paper has made sufficient theoretical and empirical research. The conclusion is that monetary policy should intervene in abnormal financial asset prices fluctuation properly. Furthermore, monetary policy should react to financial asset prices in harmony with other policy for the robust and flexibility of financial system.