Relationship Between The Monetary Policy And The Stock Market

The stock market has always been known as the "barometer" of the national economic growth and development, played price discovery, resource allocation of investments and other important roles in the modern economic market. With the expansion of the scale of stock markets, the impact of stock markets on economy is becoming more and more important, and the expansion or contraction of the stock prices have become an important cause of the macroeconomic fluctuations. In addition, the government frequently uses monetary policy to adjust and control the stock market in order to meet its policy objectives. Because of the influence of the stock market to the national economy, more and more economists focus on the relationship between the monetary policy …show more content…
Tobin (1969) thought the monetary policy affected the real economy through the supply of the capital. According to it, the increase of the money supply will result the decrease in interest rate and then rise in stock price. However, since 2006, China 's stock market has facing the biggest change of bull and bear markets. In this period, the influence of the change of interest rate and deposit reserve rate is different from the traditional theory. So the researching the impact of monetary policy on stock markets has important significance. In this dissertation, the relationship between monetary policy and stock market is the research object, using China’s stock market as a typical case to study and analyzing the impact of monetary policy on stock market. Since 1990s, China’s financial market has developed rapidly and the negotiable securities share of residents’ assets structure continues to increase, the contact between the money market and the capital market gets more close, and China’s economic development and stability becomes more and more important to the world economy, it is necessary to research the mutual effect between the assets price fluctuations and the monetary policy effects (Fernald and Rogers, …show more content…
Separately analyzing the relationship between stock price and the money supply, interest rate or deposit reserve ratio and inflation rate. Choosing a typical time period and using line chart to get whether the change of the stock price is consistent with strike of the monetary policy.

Considering whether the government should use monetary policy to intervene the stock market, and what kind of monetary policy the government should give for the bull and bear stock market, in addition, evaluating the effectiveness of the intervening of monetary policy on the stock market and to provide the important reference for the improvement of monetary policy regulation