The Relationship Between Inflation And Asset Prices And The Empirical Analysis Of Monetary Policy Response In China

Since the 1750 s, China’s financial supervision was kept a loose level, capital markets developed rapidly and financial innovation was deepened constantly. As the development of asset markets, procedure of the investment can be simplified, and more and more invest ment are involved. After the wealth effect, fluctuations of economic stability affected by a sset prices are constantly expanding, its stability and the effectiveness effect on the price l evel of monetary policy transmission are growing. Thus, in recent years, there have been s cholars researching the relationship between asset price inflation and monetary policy.By selecting data between Jan 1998 and Sep 2014, the CPI growth rate of fixed base as a representative of inflation volatility, the Shanghai Composite Index yoy as a represent ative of asset price volatility, a weighted average of the 7 day period offered rate as a prese ntative of monetary policy, we analysis the relationship between the three quantitatively. S tarting with the relationship between inflation and asset price volatility, we build a twovariable EGARCH ?M model, analyzing the relationship between them quantitatively. T he analysis revealed that fluctuations in asset prices can cause significant smallscale fluctu ations is inflation, fluctuations in inflation will have an impact in the opposite direction on asset price fluctuations.Due to the instability of China’s economic development, inflation, asset prices and ex change rate movements shows a strong time_varying characteristics. Therefore, we build a TVP_VAR model of three variables to discuss the role of monetary policy for the other t wo economic variables. The results shows that with interest rates is the main way of monet ary policy, the regulation of the economy significantly. But this approach to the regulation of asset prices is significantly lagging.