The Impact Of China's Money Supply On Stock Price

Any economy development cannot leave the financial support,for the past few years,the sharp fluctuation of asset price,such as stocks and real estate,leads to a series of financial crisis and even economic recession.In this situation,many economies adopted different means of monetary policy to maintain the smooth running of financial markets and to stimulate the prosperity and development of the economy.The stock market is the signal of the economy,and its huge fluctuations will sure have undesirable effects on the real economy.In view of the important role of stock market,analysis of the relationship between money supply and stock market plays a significant role in formulating correct monetary policy and prevent the frequent fluctuations in the stock market.The article discusses the impact of money supply on the stock price from the perspective of both theoretical and empirical analysis.Theoretically,analyze the impact of money supply on the stock price by sorting the transmission mechanism.Empirically,use Eviews to analyze monthly data of Chinese money supply and stock Shanghai composite index from January 1996 to February 2017.Establish the empirical analysis with VAR model to verify that the money supply impact on share prices.The measuring methods involved are Time series stationary test(Unit Root Test),Granger Causality Test and Impulse Response Function.According to the result,different level of money supply can have positive impact on the stock price.But in variable of the structure of money supply,only M1-M0 have positive impact on the stock price.Finally give policy suggestions on the basis of theoretical and empirical studies.