Ttudhe Sy On The Relationship Of The Asset Price Volatility And The Monetary Policy

The previous financial crisis and economic crisis tell us that the abnormal、sustained、rapid asset price volatility、the rapid expansion of price bubble and thecollapse of the bubble not only causes a serious influence on the stability of thefinancial system，but also have a far-reaching effect on the real economic development.Whether the monetary policy is effective in regulating asset price? Is asset priceeffective in the monetary policy transmission mechanism? Whether the asset priceshould be inserted into the monetary policy reaction function or as a target of monetarypolicy? If the asset price is inserted into the framework of monetary policy，how shouldthe central bank implement in order to achieve financial stability and promote economicdevelopment. The paper attempts to answer these questions.In recent years，Shanghai stock price index and Shenzhen stock price index swingsignificantly and violently，there is a serious deviation between stock price andeconomic fundamental. With the development of our economy，people’s disposableincome increase gradually，and the behavior of rigid demand for housing is obvious，andeven then speculation in our real estate market exists widely，which causes the realestate price rises every year and then the price bubble behaves gradually. The risk ofasset price impact and asset price bubble has become the major economic risk of china.Therefore, analyzing the relationship between asset prices and monetary policy、researching the solution to integrate asset price into monetary policy framework in orderto achieve the financial system stability and promote economic development are of greattheoretical and practical value.This paper researches the relationship between asset price volatility and monetarypolicy through theoretical and empirical analysis. The first chapter is the introductionwhich includes the background and meaning of the topic、literature review、the structurearrangement、research methods，innovations and so on. This chapter gives us a roughintroduction. The second chapter Introduces the theory of monetary policysystematically，which involves the ultimate target of monetary policy theory，theintermediary target of monetary policy theory and the theory of monetary policy，andthen summarizes and analyzes the asset price theory and asset price volatility theory.The third chapter analyzes the relationship between asset price and monetary policy，which includes roles of asset price in the monetary transmission mechanism、thedifficulty of monetary policy of central bank in the context of asset price volatility and so on. The fourth chapter takes the asset price factors into account through theexpansion of Taylor rule，building a theoretical model framework that concerns stockprice、real estate price、economic growth、inflation、short-term rate and monetary supplyto discuss the relationship between the asset price volatility and the monetary policy，and introduces the VAR model. On the basis of above economic model，we selectsrelated economic variables，uses VAR model，combined with the economic data to do anempirical analysis on the relationship between the asset price volatility and monetarypolicy，including cointegration analysis，Granger causality test，impulse responsefunction，variance decomposition and so on. At last，according to the macro-economicsituation of China currently，the fifth chapter summarizes the conclusions，and tries toput up some policy recommendations.Through theoretical and empirical analysis，we can get conclusions as follows：First of all，there is a long-term equilibrium positive relationship between the stockprice volatility and inflation，and stock price has a strong positive effect on theformation of inflation；on the contrary，there exists negative correlation between realestate price and inflation，the sharp、quick rise of real estate price inhibits the totalmarket demand，the wealth effect and balance sheet effect of real estate price are notsignificant，the irrational exuberance of real estate industry causes serious damage to thereal economy. Secondly，there is a long-term equilibrium positive relationship betweenthe stock price volatility and economic growth，which indicates that the development ofeconomic trend and the trend of stock price is consistent，and the stock market of ourcountry sharp volatile，so the stock market has not really played the role of“economicbarometer”. Thirdly， the monetary policy is still economic growth and pricestability-oriented，which does not consider asset prices as policy objective. Duringchallenging economic times，the central bank intervention to asset market is necessary.At last，as asset price，especially stock price，contains the economic information ofinflation in future. At the same time, the asset price plays an increasingly important rolein the transmission mechanism of monetary policy. The central bank of china shouldpay close attention to the volatility of asset price，taking asset price into the monetarypolicy framework as policy objective in order to achieve financial system stability andpromote economic development.