Asset Price、Monetary Policy And Financial Condition Index Of China

With the increasing position of capital maket(especially stock market and property market) in the economic and financial activities,the effection of the fluctuations of the asset prices on the monetary policy goal and financial stability is also increasing significantly,so more and more pepole pay their attetion to the internal relations of asset prices,monetary policy and inflation. The topic on whether monetary policy should consider asset prices has been talked hotly by theorist and central bank,and since the international financial crisis broke out in2007,the topic becomes important once again. Especially with the rapid increase in real estate price in recent years,the argument about asset price bubble heats up,so the central bank must be aware of the immanent connection between asset price volatility,monetary policy and inflation expectations,which has great significance on maintaining the stable development of econmy and finance.This paper studies the ralationship between the asset prices and the monetary policies theoretically and empirically,and foucsed on analyzing how the fluctuation of asset price inflence the effects of monetary policy under the new ecnomic and financial envirionment. Along this logic,in addtion to the first chapter of introuduction and conclution in the final chapter,the basic framework of this paper is as follows:Chapter two discusses the existing argument about the assets prices and monetary policy framework,firstly analyze characteristics of current monetary policy framework,then discusses the controversy and debate of whether monetary policy should consider asset prices, as well as the retationship between asset prices and minetary policy and their transmission channel.Chapter three elaborates the ralationship between asset prices and monetary policy from the inflation mechanism point of veiw.Starting with the current inflation only foucs on the CPI index which has brought a series of problems,the paper discusses the selection of central bankd when asset prices being infated,and then attempt to add asset prices into inflation index.In the fouth chapter,this paper propose a vision of building China’s financial conditions index basis on the above discussions,including monetary conditions index and fianancial condition index,and then the respresentative variables and the data of our country to empirically test and analysis. The fifth chapter dissusses the effect on ecnomic and financial and inflation through financial condtions index.Based on the VAR model and the average impulse response analysis on CPI,we can come to a conclusion as following:Asset price fluctuations affect monetary policy objectives,and CPI indicator could not forecast inflation expectation,empirical results also confirmed that FCI granger cause CPI,and FCI has a good prediction of the changes of future inflation,which is better than CPI indicator.so we can say FCI is a better indicator for central bank’s monetary policy.