Research on Dynamic Correlation between Monetary Policies and Stock Price

On the theoretical analysis of the relationship between monetary policy variables and stock price, taking the monthly data of 1998.1-2007.2 as samples, this paper researches on the dynamic relations between M-1, M-2, commercial banks' loan interest rate, CHIBOR and the stock price of China with the methods of HP filter, Granger causality test, variance decomposition and state space mode. The empirical results show that there are incomplete bidirectional relations between monetary policy variables and the stock price, the positive effect of monetary policy on stock price is existed while the transmission efficiency is low; the feedback function of stock price to monetary variables is higher than the positive effect of monetary policy on stock price. Therefore, as the reference index of monetary policy, stock price should be monitored and regulated by currency authority to enhance monetary policy efficiency.