Monetary policy and the stock market in China: short term and long term impacts on the development of Chinese stock markets

Abstract

The main focus of this paper is on how monetary policy interacts with Chinese stock markets. There are both long run equilibria and short run dynamics found among the interest rate, the short term loan quantity, stock market depth, monthly trading volume and monthly historical total shares issued in the Shanghai stock market and the Shenzhen stock market by VECM model. However, given the intrinsic difference between these two stock markets, the reactions to monetary policy are not entirely the same. Based upon these findings, this paper will provide some policy implications in later sections.