The Research On The Impact Of Capital Market Development To Monetary Velocity Of China

The velocity of money is an important concept in money economy. It is the important indicator which connecting the real economy and money supply, reflecting the quality of economy running and the situation of money circulating. What is more important, the steady of money velocity is connecting to the intermediate target's feasibility and the effectiveness of money policy.The change of money velocity in one hand is the result to the change of the macro economy and the financial environment,and in the other hand,the change of money velocity also reflect many problems of the economy and the finance. As the continuous developing of the whole world economy, endless out coming of variety of financial innovation, and broadly using of the high technology in the financial part,the gradually relaxing of finance regulation,traditional money demand function cannot make a reasonable explanation to the changes of real velocity of money,new features and changes has occurred as a result. In the past two decades,China's capital market has generated from zero and experienced a process of rapid development. There are many changes not only in the scope but in the structure and the marketization in China's capital market. Which has deeply changed the constitute form of social wealth, the micro-economic motivations of initial money demand and monetary mechanisms, so that the velocity of money has dramatically changed. In this paper the writer deduce that the development of capital market has influenced the velocity of money, and based on which, the writer start the analysis.In this paper, the writer first analyze the time series of money velocity and find the velocity of money is declining in longtime, but the speed of decline is descending, In lately short time the change of money velocity is more steady. In the following section the paper summarized the research result about the factors that influence the change of money velocity and divide the reason into three aspects:marketing, institution and technology. The main section of the paper analyze the current situation of capital market of China and generalize the influence channels through which the capital market react on the velocity of money. And then the paper introduced the Cash In Advance model to analyze the change of money velocity, and doing empirical tests by using SVAR model, finally get the conclusions that the development of capital market has deeply influence the change of money velocity.After the analysis above the paper has made the suggestion that the monetary authorities should stabilize the prize of capital, restraint the capital bubble and increase the liquidity of capital market by regulating the operation of the capital market and establishing a rational pricing mechanism. And promoting the capital market system construction and reform, encourage financial innovation and enhance the capital market liquidity to improve the operational efficiency of capital markets. Make the capital market play a positive action to the economy; raise the effectiveness of it to make sure the money moving smoothly. Under the premise that the money supply is still the intermediate target of Chinese money policy, the monetary authorities should keep the velocity of money steady and increase the testability of it.