The Empirical Study Of Chinese Stock Market Impact On Money Demand

In the paper,Ⅰ select the influence of the stock market on money demand in China as my topic, and choose the quarterly data between1994:Q1and2011:Q3for my study. With these data, I estimate the autoregressive distributed lag model using the "general-to-specific" modeling method. Then I derive the error-correction model, based on which I analyze the long-and short-run properties of China’s money demand function.According to the money demand function, the stock market exerts a significant negative effect on the money demand in China in the long-term, which means the substitution effect of the stock market on the money demand is bigger than the total of the wealth effect, the risk-spreading effect and the transaction effect of it in China. Also, the function shows that for each additional one percentage point of the expected rate of return of the stock market, the real long-term money demand will increase by0.111percent. Therefore, I proposed that the central bank should not only consider the money demand of the real economy, but also pay attention to that of the stock market. In other words, both the commodity prices and the asset prices should be considered in selecting the appropriate money policy actions.