An Empirical Study On The Relationship Between Money Supply And Asset Price In China

Because of the money supply and inflation have a stable relationship,so the central bank can adopt the inflation targeting system,by adjusting the money supply to maintain a lower price level,and thus provide a stable macroeconomic environment for economic development,has become the consensus of economists.However,with the outbreak of financial crisis result from the asset price inflation since 1980 s,whether the asset price should be included in the traditional monetary policy goals has become a concern in the economic field.Because the stability of the general price level has not been able to ensure the smooth operation of the economy,fluctuations in asset prices also have a significant impact on the economy.Since the reform and opening up,in the past forty years,the coexistence of high money supply and moderate inflation has been a typical feature of China's macroeconomic operation,and the departure from the traditional trading equation is also known as ?Chinese currency puzzle?.There are a variety of hypotheses in the theoretical realm for the explanation of the Chinese currency puzzle.In view of the rapid development of China's financial market and real estate market in recent years,this paper chooses one of these theories--financial asset hoarding hypothesis,and verify it from two aspects of theory and empirical.This theory comes from the expanded quantity theory of money,both put the asset market into the framework of monetary policy analysis,in order to explain the mystery of the Chinese currency,and to provide a basis for the choice of monetary policy objectives.On the basis of the relevant theories and literature review,this paper sums up the theory of the relationship between money supply and asset prices,then,uses econometric method to analyze the correlation between money quantity and asset price.The empirical results show that there is long-term stable equilibrium relationship between M2 and the Shanghai Composite Index and Shenzhen stock index;M2 is the Granger Cause of Real estate price,the impulse response analysis shows that M2 has a significant positive impact on the average selling price of commercial housing in China,and the positive effect lasted for a long time.In addition,this paper further proves the theory of financial asset hoarding through the analysis of the scale and structure of China's capital market,credit markets and financial assets held by residents,that is,large amount of money flows into the stock market and the real estate market as the representative of the asset market,thereby promoting the rise in asset prices.This represents an increase in the proportion of currency for asset function,which makes China's continued existence of excessive money supply over the years did not cause a sharp rise in the price level.Based on the above theoretical and empirical analysis,this paper has offer the corresponding policy recommendations,including the following three aspects: the monetary authorities should pay attention to asset prices in the implementation of monetary policy;regulate the operation of the capital market;deepen the reform of financial system.