Research On The Feasibility Of Asset Prices As The Intermediate Target Of Monetary Policy

With the rapid economic growth and the development of financial markets, the trend of internationalization of financial markets, great changes on the monetary policy transmission mechanism and policy effects have taken place. As the influence of asset prices in the economy gradually increased, scholars begin to discuss that whether asset prices can be used as an intermediate target of monetary policy.This article uses economic statistics such as economic growth rate, inflation rate, real estate sales price index growth rate, rate of interest rate changes, total credit growth rate, money supply growth rate. The author uses the VAR model, the impulse response function analysis, Granger Causality Test, and the feasibility of comprehensive analysis to handle these statistics, then gets the following conclusions:(i)Purely from an empirical point of view, asset price changes a certain extent of factors on the macroeconomic fundamentals, in turn; changes in these factors can be reflected on asset price volatility; the asset price volatility and monetary policy also has certain correlations. It is possible to set asset prices as the intermediate target of monetary policy. But in our current economic development situation--immature financial and capital market, economic development with complex and diverse problems, the asset prices uses as an indicator is not strong enough. Empirical results show that by regulating the stability of asset prices can not be achieved to the purpose of promoting economic growth and stabilizing prices. It is not the best time for central bank to target asset prices into monetary policy system.(ii)While asset prices can not be used as intermediate target of monetary policy, but it can supply some information when the central bank needs to make a decision. The continuous rise in asset prices may increase the liquidity of the currency; making drastic changes in the amount and structure of money supply, making a lot of demand for funds shifting from production to non-production areas. In this case, the effect of monetary policy may be more absorbed by the financial and capital market; the actual impact in the real economy sector is relatively weak. These might be particularly concerned by the central bank.(iii)The authority should respect the laws of the operation of capital market. They can prevent the impact of asset price volatility by strengthen the regulatory and institutional building, but not to directly intervene asset prices. China's capital market is still in the early stage of development types and the quantities of assets are not enough. Most aspects of trading system are not perfect enough. Asset prices can be easily manipulated, which unfortunately results in the asset bubbles. Financial innovation should be adopted in order to increase the supply of financial products. At the same time, by strengthening supervision to prevent insider trading and standardizing trading behavior of investors, then asset price volatility can truly reflect the supply, demand and macroeconomic fundamentals, which reduce asset price volatilities and prevent the formation of asset bubbles.(iv)It should be noted the danger of asset price impact to financial institutions. Recent years returns in capital market in China shows strong growth, and also significantly higher than the opportunity cost of investment. The central bank should time to maintain a higher vigilance to the risk factors in the economic and financial development. That is, the authority closely monitor the flows of bank funds, be aware of credit funds into various asset markets and guard against potential financial risks, which will be beneficial for the sustained and healthy development of macroeconomic and create a favorable financial environment.