An Empirical Study Of The Development Of China's Stock Market, The Demand For Money

Before the 1990s, the stock market in china had limited impact on particular economics, in a fairly long period, the main mechanism of conducting Central Bank currency policy was the credit channel of commercial banks. According to different economic phenomenon, Central Bank alters different monetary policy by intermediate goals such as interest rates and money. Since the 1990's, coupled with the establishment and further development of Chinese stock market, the stock market scale constantly expanding, the function is also increasingly perfect. The share of holding stock in the residents'financial capital structure is keeping on running. The proportion of direct financing grows continuously in the company financing structure. In recent years, the stock market further development made the traditional monetary policy in theory gradually insignificant; the central banks are faced with the problem of how to increase the monetary policy efficiency. Some developed countries have gradually made the variables of stock market into the consideration of monetary policy, and they thought the effects on stock market as the inside variable when they established monetary policy. However, the Central Bank of China still enforces its policy according to the traditional currency trading equation when carrying on the currency policy. It basically neglects the factors from stock market. In view of this, this paper establishes a demand function of the currency which contains the stock market variables.It shows the influence mechanism of stock market towards the demand for money, and it also tests the influence with modern economic measuring method. It is hoped that the conclusion of this paper can provide a beneficial reference for the currency authoritiesThe paper includes four parts. The first chapter major study on the background, the meaning and the status quo of local or overseas. The second part is the theories foundation of this paper, It Emphasis on the theoretical foundation of the amount and structure of demand for money. The chapter 3 is the demonstrated analysis part, and is also the focus of section. First, it establishes a new money function on the basis of the traditional money equation, this function contain the factors of stock market. And it uses Johansen Co-Integration and error correction model to test this model. Second, this paper establish the VAR model between M1,M2and the index of stock market.And using the Johansen Co-Integration test, impulse response function and variance decomposition, it analyzes the relationship between the volatility of stock index and the demand for money. Third, it builds the function of liquidly of money with the available of stock market by using the least square method and Johansen Co-Integration TestThe result reveals that the stock market bargains bring a positive correlation to demand for money whatever is short or long. However, the influence from short-term price fluctuations to the M1 and M2 is different, To the stock index a positive impact, it will produce positive impact on the m1, but negative influence to m2. But from the long run, the volatility of the stock index bring a slight negative influence to demand for money, and the stock market has a positive influence on the money liabilityThe final chapter of the paper summarizes the paper, and it puts forward some policies suggestion integrated with Chinese realities and conditions. The central bank enact monetary policy should consider the influence of stock market development towards monetary policy, thus the implementation of monetary policy can better guidance and control economic.