A Study On The China’s Stock Market Impacts From America’s Quantitative Easing Monetary Policy

April2007, New Century Financial Corporation filed for bankruptcy protection.After that, Standard&Poor’s as well as Moody’s downgraded the credit rating ofhundreds of MBS. There were more financial institutions in crisis and filed forbankruptcy protection. A financial crisis which is caused by the US SubprimeLending thus spread worldwide. In one year after the outbreak of the crisis, FederalReserve cut the federal funds rate seven times and cut the Discount rate eight times.But the market has already fell into “Liquidity Trap”. Conventional monetary policycan’t reverse the market from downturn. November25,2008, Federal Reserve startedthe first round of Quantitative Easing (QE). During the following6years, the US haslaunched a four-round of QE, which led the Balance Sheet to4.48trillion dollars. Asthe US economy is gradually out of the shadows, the news of QE exiting emergesmany times. But QE3exists until November2014.As an unconventional monetary policy, QE made the US economy liquid andeffectively promote the recovery of the US economy in the financial crisis. However,due to the economic status of the US and the identity of dollar in world currency, QEput the crisis to other countries. China, as a development country with huge potentialfor growth, also the largest creditor country and an important trading partner of US,inevitably has a strong impact of QE. So the topic of this paper is focus on how QEaffected the stock market, which as a barometer of macroeconomic, of China. Stockmovements can directly reflect the prosperity of the entire economy and the health ofthe industries. This research is not only helpful for understanding the stock market after the crisis, but also an important reference for Japan or Europe countries toadvance or withdraw QE.The way, which combines theoretical analysis and empirical testing together, isselected to finish the research. In the first part, several important theoretical bases areintroduced and I analyzed the approaches of influence on Chinese stock market. Thenthis paper chooses the monthly data corresponding to different approaches from2007to2014to establish VEC model, do ADF test, do Johansen test and analyze thevariance. The results show that: China’s monetary policy can have long-terminfluence on the stock market and can also affect the decision made by investor.Interest rates and short-term capital flows have an impact on our country at thebeginning while the impact is going down over time; although the real economy hastime lag, it’s an important way to effect the stock index; the linkage between Chinaand the US stock market has only short term impact and that impact is damping.Finally, after combining empirical analysis conclusion this paper proposes a will thatfocus on international cooperation in the use of monetary policy, optimize the mix ofmonetary policy, and be careful to use QE. It’s important to strengthen thesupervision of cross-border capital, promote the reform of international monetarysystem, and pay more attention to develop the real economy.