Monetary Policy Transmission In China

Transmission mechanism of monetary policy is a kind of mechanism of action which is defined as a central bank uses monetary policies to affect intermediary index, and then finally fulfill the established policy objectives. Monetary policy transmission mechanism is a multi-channel process, which can be divided into:interest rates channel, credit channel, exchange rates channel and asset price channel, and different transmission channel have different effects. Since the reform and opening-up, with the deepening of the reform of the economic system and the development of the financial market, especially after the establishment of Shanghai Stock Exchange and Shenzhen Stock Exchange, China’s capital market as well as the stock market made great progress. Stock value accounted for the proportion of GDP and the stock holdings in residents’ assets structure have kept up a steady increase. That makes the monetary policy and the stock market is in a closer relationship. As the stock market is playing a more and more important role in the economy, the affect of stock prices makes in the monetary policy transmission has become more obvious; as a result, the study of the transmission of monetary policy in the stock market is particularly urgent.China’s transmission of monetary policy in the stock market is divided into two stages, with the first stage is monetary policy transmit to stock prices, and the second stage is that stoc k prices are transmitted to the real economy. In the first stage, the article uses the unit root test, co-integration test, granger causality test, impulse response analysis, variance decomposition analysis and correlation analysis method, in view of the money supply and interest rates, to realize the monetary policy adjustment that affect the stock prices, and concluded that the channel of monetary policy transmission to stock prices is unobstructed, the monetary policy mainly through the interest rates rather than currency supply to affect stock market. In the second stage, the article through the similar analysis method to discuss influences that the stock prices affect on consumption and investment, and draw the conclusion:the wealth effect and invest effect of stock prices are weak, the channel of stock prices transmitted to real economy is obstructed. Therefore, China’s present channel of monetary policy transmission to stock prices is weak, and the main problem is in the transmission of stock prices to the real economy. For how to dredge the transmission channel that the stock price to the real economy, the article puts forward four suggestions:strengthening the stock market stability, reduce speculation phenomenon; Expand the scale of the stock market, enhance the proportion of direct financing of enterprise; Strengthen the regulation of listed companies, regulate the use of fund financing; Perfect the stock market mechanism of access and exit.