Empirical analysis about the relationship between monetary policy and stock prices in China

In this paper, the effects of monetary policy on stock prices are analyzed theoretically and empirically. The CSI 300 index is used as the indicator of equity prices, meanwhile the interest rate, money supply, credit scale and exchange rate are employed as the indicators of monetary policy. Further, the VAR method is adopted to investigate their relationship empirically. The results of the empirical study show that interest rates, money supply and credit scale have weak impact on stock prices in the short run, while the exchange rate failed to influence share prices during the sample period. Therefore, the Chinese government can affect the stock market indirectly through monetary policy but only to a limited extent.