By Wang Junli, Institute of Public Administration and Human Resources, DRC

Research Report, Special Issue, No.76, 2019 (Total 1704)

2019-10-10

Abstract: China’s macroeconomic statistics from 1996 to 2014 show that the fluctuation cycles of stock price and output, inflation, interest rate and real exchange rate all present different degrees of coordination. Under the impact of stock price rise of a standard deviation innovation, output, inflation rate, interest rate and real exchange rate all show an increase trend. On this basis, this paper explores the impact of stock price fluctuations on the macro economy and its transmission mechanism and analyzes the impact of stock price on major macroeconomic variables, the impact of exogenous influencing variables on stock price, the response of macroeconomic variables to stock price shocks under different monetary policies as well as the response of stock prices to various shocks both at home and abroad under different monetary policies. When the exchange rate is not smoothly transmitted, the response of stock price on output, inflation, profit and labor supply shows a tightening effect, whereas the response of stock price on consumption, real wages, interest rate and real exchange rate shows an expanding effect. The introduction of stock price in monetary policy rules enhances the response of the whole economy to stock price changes and strengthens the function of the stock market as an “economic barometer”.

Key words: stock price dynamic condition, monetary policy, impact effect, small-scale and open-oriented economy