Research On The Relationship Between Monetary Policy, Stock Prices And The Real Economy

With the fast-growing financial markets, the central bank’s monetary policy facesgreat challenges to maintain financial stability. Central banks should respond to assetprice fluctuations and the resulting fluctuations in the real economy. In addition tostrengthening supervision of financial markets and institutions, monetary policyshould be included in the asset price volatility regulatory, which issue is surviving twodifferent opinions in the current academic. The stock market as an important part ofthe financial markets, they have complex interplay relationship with the real economy.Real economy is the basis of the stock market, and the stock markets promote produc-tivity of social and economic development. However its simultaneous blindness andinertia will generate a lot of adverse effects on macroeconomic operation.Based on these practical problems, this paper introduces two expansion model ofmacroeconomic statistics VAR model: FAVAR model and FECM model. With the ap-plication of these two models, this paper studies the linkage between Chinese stockprices and the real economy. Based on the related issues of stock prices and the realeconomy, further raised the issues of put the stock price index into the reference var-iable in macroeconomic policy-making, consider the possibility of becoming a targetof monetary policy.The FAVAR model and FECM model created by stock prices and large-scalemacroeconomic variables show that the stock prices for eight macroeconomic factorsall have varying degrees of impact, while monetary policy as interest rate factorand currency factor also has a relatively significant impact to the stock prices. Butthe stock prices in response to each factor are different in the degree and the re-sponse time, which is the price factor, industry factors, investment factors and realestate factors, will have a negative impact on different levels at different times. Sothat monetary policy using stock prices to influence the real economy has causedmany difficulties. The reasons for this phenomenon in this article were analyzed andmade some improvements recommendations.