Asset Price Fluctuation And Research On Monetary Policy

Since the beginning of the 1980s, the inflation has been effectively governed. But with the rapid development of capital market, more market volatility, and the growing concern on the stability of the financial system, the relationship between the asset prices and monetary policy have been generally controversy in financial economists and central banks within recent years. The paper conducted the research on the impact of the interaction mechanism between monetary policy and asset prices, and it dealt with the impact of shocks on asset price fluctuations on the real economy and financial system stability, and the challenges to monetary policy, and solved the central issue which is "asset prices should become the target of monetary policy".Firstly, the paper analyzed how the asset prices affected aggregate demand through investment and consumption channels, thus affected the economic entities, the expansion and collapse of asset price, then threat to the stability of the financial system. This article stated that central Bank monetary policy should consider asset price volatility. Then, the paper conducted the analysis on the relation of asset prices and inflation, monetary policy, and regulatory objectives. By exploring the measurement of the inflation index include asset prices factors, and whether the central bank should use asset prices as a target of monetary policy, the paper set out the correct interpretation that the central banks should Correctly interpret the information included in the asset price fluctuations and use the asset prices as an important reference to monetary policy. Secondly, by conducting a system theory analysis on the impact mechanisms on asset prices and monetary demand, money supply, monetary circulation rate, monetary policy transmission mechanism, and conducting a Empirical analysis on the relation of stock prices and the monetary policy on the basis of the data of China, the paper concluded that China's stock prices had an impact on the money supply that can not be neglected, and the role of stock prices on monetary policy transmission mechanism is very limited. Finally, in this article suggested that a forward-looking monetary policy should be raised by the central bank, which to stabilize inflation paramount objective, to promote economic growth sustainability, and to give due attention to asset price fluctuations.