The Research On Transmission Effect Of Monetary Policy In China Based On Capital Market

China is in a critical period of Economic Transition. Sustained and stabledevelopment of economy, which requires a correct formulation and implementation ofmonetary policy, is an important foundation for building a socialist market economy.With gradual development of stock and bond markets, capital market is playing anincreasing role in our economic life as well as the transmission mechanism ofmonetary policy. It has been twenty-eight years since Chinese central bank started theimplementation of monetary policy in1984. Although more and more scholars areconcerned about the transmission mechanism of monetary policy, the study on theeffects of monetary policy transmission through the capital market is not systematic.And most theses, which used the stock market as the representative, did not studymonetary policy transmission comprehensively through capital market which, innarrow sense, includes stock market and bond market. The rapid development of bondmarket makes it an indispensable component of our capital market.This thesis studies the transmission effects of monetary policy in China based oncapital market. It uses the stock and bond markets as the representatives, adoptingqualitative and quantitative analysis, empirical and norm, macro and micro analysis,to comprehensively study the transmission effect of monetary policy in China basedon capital market and hope to provide some suggestions.Firstly, the thesis makes a theoretical description of the monetary policytransmission mechanism in capital market from two aspects. The first one is from thecentral bank monetary policy to capital market and its pathways include interest rates,changes in the portfolio, rate of inflation, money supply and exchange rates. Thesecond aspect is from capital market to the real economy and its pathways includewealth effect, liquidity effect, Tobin’s Q theory effects and asymmetric informationeffects.Then, the thesis points out the impact factors of monetary policy transmissioneffects through capital market, including the development of capital markets, moneymarket and capital market integration, monetary policy transmission environment and the behavioral characteristics of the micro bodies, and analyzes the development ofthese factors in China.Furtherly, making empirical analyses respectively from monetary policy tocapital market and from capital market to real economy by means of descriptivestatistical analysis, co-integration relationship test, Granger causality test, VAR model,impulse response functions, variance decomposition and panel data model. It usesinterest rates and money supply to study the effects of the first aspect. The researchdemonstrates the first aspect is relatively smooth. Money supply has obviouslyinfluenced capital market, and the impact on the stock market is bigger than that onthe bond market; however, the effects of interest rates on capital market are notobvious. And it uses the consumption and investment to study the effects of thesecond aspect. The research shows the second aspect is not smooth. Capital marketdoes not have obvious impact on the consumption and investment. And the role ofstock market is not obvious different from bond market.Finally, from promoting market-oriented reform of interest rates, specificationand development of capital markets, and improving public psychological expectations,the thesis puts forward three pieces of suggestion on optimization transmission effectof monetary policy in China based on capital market.