Proceedings of the 4th Management Science Informatization and Economic Innovation Development Conference, MSIEID 2022, December 9-11, 2022, Chongqing, China

Research Article

Empirical Research on the Impact of China’s Monetary Policy on Stock Market Based on VAR Mode

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  • @INPROCEEDINGS{10.4108/eai.9-12-2022.2327725,
        author={Jiaxiang  Ji and Ziqi  Yang},
        title={Empirical Research on the Impact of China’s Monetary Policy on Stock Market Based on VAR Mode},
        proceedings={Proceedings of the 4th Management Science Informatization and Economic Innovation Development Conference, MSIEID 2022, December 9-11, 2022, Chongqing, China},
        publisher={EAI},
        proceedings_a={MSIEID},
        year={2023},
        month={3},
        keywords={stock market interest rate money supply var model monetary policy},
        doi={10.4108/eai.9-12-2022.2327725}
    }
    
  • Jiaxiang Ji
    Ziqi Yang
    Year: 2023
    Empirical Research on the Impact of China’s Monetary Policy on Stock Market Based on VAR Mode
    MSIEID
    EAI
    DOI: 10.4108/eai.9-12-2022.2327725
Jiaxiang Ji1,*, Ziqi Yang2
  • 1: Mathematics, University of Wisconsin-Madison
  • 2: King’s Business School, King’s College London
*Contact email: jji57@wisc.edu

Abstract

The stock market plays an increasingly significant role in the transmission of China's monetary policy. As an important way for the central bank to regulate the national economy, the announcement and implementation of the monetary policy will inevitably cause the fluctuation of the stock prices. Referring to Qu Jing ’s paper [2], this essay adopts the vector autoregressive model (VAR), selects monthly data from 2010 to 2020, empirically analyzes the impact of China’s monetary policy on the stock market, and uses impulse response analysis and variance decomposition to further study the effects of monetary policy on the real economy. Narrow measures of money supply (M1) and Shanghai interbank offered rate (Shibor) are selected as the monetary policies variable indicators while the monthly closing price of the Shanghai and Shenzhen 300 Index is regarded as the representation of the entire stock market. All of the mentioned data is from the CSMAR database [1]. The study shows that the changes in the economic indicators, have an impact on the stock market, but not significant and have a time lag. An increase in the money supply will cause stock prices to rise, and an increase in interest rates will cause stock prices to fall. Based on the empirical results, suggestions for formulating monetary policies are put forward.