The Effects Of Monetary Policy Changes To Stock Market

How monetary policy changes affect stock market is a frontier of current monetary theory. In fact, the Channel of stock market of monetary policy is composed of two steps:how to pass monetary policy to stock market and how stock market affects the real economy. The interaction between stock price and monetary policy is the most important step in the conduction of stock market because it is not only crucial for the effectiveness of policy transmission, but also of great significance for the monetary authority's decision making. In this paper, basing on the existing documents, the author does a thorough and systemic research on monetary policy and stock price behavior with China's data. The main contents and conclusions are as follows:(1)Applying the econometric method, the paper studies whether monetary policy has effect on stock price volatility. The results show that the effect of China's continuous monetary policy on stock price volatility is not strong, and different monetary policy tools affect stock market price differently; (2) In order to analyze the announcement effect of different monetary policies respectively, this paper also employ the Event Method and GARCH model. We draw a conclusion that the announcement effect of monetary policy change, which can well explain the stock price fluctuation, is strong. Another conclusion is that whether Chinese monetary policy announcements have announcement effect or not depends on the market trend and the anticipation of the market; (3)The study also shows that, compared to the quantitative monetary policy instruments, the priced monetary policy instruments have stronger impact on stock market; (4)At last, the paper brings forward some policy suggestions for monetary authority on whether targeting stock price and how to establish an effective interaction system between monetary market and capital market.