Study On The Influence Of Stock Market On The Money Demand

Since90s, there’s a big development in our capital market. Especially in2005, theReform of Non-tradable Shares has become a turning-point of our capital market. Butnowadays, we don’t take the capital market into consideration whenestimating the MoneyDemand so that the MoneySupply can’t meet the realdemand of the nationaleconomy.Through making review of the theory of Money Demand and Monetary PolicyConduct Mechanism, the paper has used methods of Theoretical Analysis and EmpiricalAnalysis, Qualitative Analysis and Quantitative Analysis. The paper analyzed theinfluence of Reform of Non-tradable Shares and the application of Four Effects inChina.Then，the paper establish VECM model of money demand. And using ADF test, thecointegration test, the Granger Causality tests, VAR， the vector error correctionmodel(VECM)，the impulse response function, and variance decomposition method etc. ofnewest of Econometric technology, it tests the impact of China’s money demand by thestock market. Finally，according to the result of empirical analysis，the paper thinks that inthe long turn, the stock market has a stable positive effect with narrow money demand Ml.But in the long turn, the stock market has a stable negative effect with broad moneydemand M2. As China’s immature capital market, the strength of increasing demand formoney (wealth effects, portfolio effects, transaction effects) is still relatively weak, and thepower of reducing demand for money is strong. China’s capital market reflects the strongsubstitution effect. In the last part of this thesis, we give some policy implications andsuggestions based on the empirical analysis in the previous parts.