An Empirical Study On The Relationship Between Financial Conditions Index And CPI Or Economic Growth

The traditional Quantity Theory of Money consider that:At a given level of output and money circulation velocity, a change in the price level depends only on the money supply. However, with the development of the capital market, this conclusion does not hold again. When rising the currency more into the virtual economy and less into the real economy. May appear high money growth rate and low inflation rate coexist situation in the short term, At the same time asset prices will remain at a high level and is likely to continue rising.2005to2007period, the rapid accumulation of foreign exchange reserves China, central banks therefore release large amounts of foreign exchange, but the exchange did not immediately into the real economy, caused the rise in prices, but to enter the property market and the stock market, the housing and stock prices as the representative of the rapid rise in asset prices. But from2007to2008, funds began to transfer to the real economy, the rapid rise of resulting in the price level, compared to the CPI once reached more than8%of the level. Thus the central bank in the implementation of monetary policy, various factors of monetary policy transmission channels of monetary policy effect influence. So the construction has very important significance to make financial conditions index of monetary policy in china.This paper selects the real effective interest rate, the real effective exchange rate, real estate price index, stock price index, and two kinds of monetary factors different money supply and credit as variables, estimate the effect of each variable on the CPI through the SVAR impulse response method, and then calculate the weight of each variable, and build out of my the financial conditions index FCI1and FCI2. Then, the relationship between the comparative analysis of the two kinds of financial conditions index and CPI and economic growth. In order to analyze the needs, this paper adopts a linear graph analysis, Grainger analysis, causality test impulse response analysis, prediction and analysis of four methods of analysis.Through the empirical analysis found that:first, the real effective interest rate, stock price index, the impact of monetary factors on the CPI is significantly higher, the weight of the financial conditions index in FCI. This shows that the monetary policy transmission channels of interest rate, money supply and credit played an important role, while the stock market as the investment and financing channels in the process of monetary policy transmission is playing an increasingly important role; second, China’s financial condition index can change5advance forecast CPI, can explain40%of variation the above CPI. But in comparison with actual credit balance as the prediction effect of monetary factors to construct the FCI2has better, this shows that the financial conditions index with the indicator of monetary policy effect, can become a reference amount of central bank monetary policy; third, China’s financial condition index can advance the1period forecast the change rate of economic growth, can only explain about15%of the economic growth rate change, but the actual credit balance as the currency factor to build a better FCI2prediction. This shows that factor GDP statistic is more abundant, so the financial conditions index can not have good prediction effect.