China's Monetary Policy Transmission Mechanism Of Stock Market Research

Since the 1990s, the development of the capital market has put forward the great challenge to the monetary policy. The development of capital market changes the monetary policy transmission mechanism which is distorted and complicated. Study on the relation between capital market and monetary policy becomes an important subject.The mechanism of stock market transmitting monetary policy is such a process: monetary policy tool operations impact the variables in the financial field which influence on the variables in the real economy further. Therefore, the mechanism of stock market transmitting monetary policy can be divided into two close links: from monetary policy to the stock market; from the stock market to the real economy.In the first link, we may select interest rate and currency supply as the variables transmitting monetary policy, and analyze the relation between the changes of interest rate and stock price, the relation between money supply and the money demands in stock market.In theory, the change of interest rate impacts on the change of stock price to negative way. In order to stimulate the economic growth, Central Bank reduces the deposit and loan interest rate eight times from May 1 in 1996 to February 21 in 2002 continuously. The stock market response sensitively .Next exchanging day, the stock price goes up quickly.In the second link, we may select stock prices as the variables in the stock market and investment and consumption as the variables in the real economy field. In theory, stock prices influence investment and consumption through wealth effect, Tobin's"Q"effect and balance sheet effect. The empirical model proves that the changes of stock prices have not been one of the greatest factors which influence investment and consumption.