Analyzing the Effectiveness of China's Monetary Policy Transmission Channels through Financial Asset Prices Based on the VAR Model

Xiyang Zhang

doi:10.30560/jems.v7n3p81

Xiyang Zhang School of Economics and Management, Guangxi Normal University, China

DOI: https://doi.org/10.30560/jems.v7n3p81

Keywords: monetary policy, financial asset prices, transmission mechanism, VAR model

Abstract

The effective transmission of monetary policy is critical to a country's economic development. This study empirically examines the transmission mechanism of monetary policy via financial asset prices by employing a Vector Autoregression (VAR) model. The findings reveal that the current relationship between China's stock market and economic fundamentals is weak, hindering the stock market's potential to serve as a robust transmission channel for monetary policy. Consequently, it is imperative to further advance interest rate liberalization and to foster the continued development and improvement of the capital market. Additionally, the study identifies a time lag in the transmission of monetary policy, highlighting the importance of expectation management by the central bank in the formulation of economic policy.

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