Research On The Impact Of China’s Monetary Policy On Stock Prices

In recent years, stock prices fluctuation often caused the financial sector turmoil. Monetary policy had to maintain the goal of price stability and consider the goal of financial stability. Abnormal stock prices fluctuation affects the price stability by means of consumption, investment and inflation expectations, and also impacts on financial stability through multiple channels of credit, financial institutions, asset quality, the systemic risk of financial markets and exchange rate stability, and it is difficult to balance price stability and financial stability objectives for the monetary authorities. How does stock prices fluctuation impacts on the objectives of monetary policy, can monetary policy influence the stock prices, and how to respond to abnormal fluctuations in stock prices, these issues are concerned by of the theorists and practitioners of monetary policy more and more. The empirical analysis showed China’s stock prices have a certain impact on China’s price stability, but not yet on financial stability, the potential risks of the stock prices fluctuation on the financial stability can not be ignored. The paper further discussed the relationship between the goal of monetary stability and financial stability objectives, the focus of the relationship between the two in the context of stock prices volatility changes, as well as the policy dilemma facing the monetary policy.Paper used a combination of theoretical analysis and empirical analysis to analyze the differences in central bank money supply, interest rates and bank credit affecting the stock prices, analysis showed that the reaction of the stock market to monetary policy variables depends on situations of stock prices running:in stock expansion period, the stock prices of all shock response showed a long persistence, and efforts to the role of money supply shocks were slightly larger than the interest rate shock,and much larger than the impact of loan balance; in the price downturn period, the stock prices response to interest rate shocks were more strongly, its role in the intensity were far superior to money supply shocks, slightly better than the loan balance shocks, and all of the reactions were durable.On the basis of the above studies, the paper presented a framework of policy options for monetary policy to respond to fluctuations in stock prices. From the perspective of the objectives of monetary policy, due to the inconsistency of price stability and financial stability objectives caused by the stock prices fluctuation, central banks needed different prioritization and selection based on the importance of policy objectives. From the monetary policy rules, focusing on a combination of stock prices volatility in a timely manner prior response and scientific post-processing mechanism. From the perspective of policy tools, central banks should adopt diversified tools to deal with stock prices fluctuation according to the different reactions of the stock market to monetary policy variables.