Monetary shocks and asymmetric effects in an emerging stock market: The case of China |
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| Institution: | 1. The People''s Bank of China, Jinan Branch, Jinan, Shandong 250014, China;2. School of Economics, Shandong University, 27 Shanda Nanlu, Jinan, Shandong 250100, China;3. Department of Economics, University of California, Riverside, CA 92521, USA;1. BK21plus Regional Quantitative Analysis Research Group, Department of Agricultural Economics and Rural Development, Seoul National University, Republic of Korea;2. Department of Agricultural Economics and Rural Development, Research Institute of Agricultural and Life Science, Seoul National University, Republic of Korea;1. Economics and Management School, Center for Macroeconomic Research & Policy Evaluation, Wuhan University, Wuhan 430072, China;2. School of Social Science, Tsinghua University, Beijing 100084, China;1. Department of Public Policy, 3250 Public Policy Building, University of California, Los Angeles, CA 90095, USA;2. School of Labor and Human Resources, 339 Qiushi Building, Renmin University of China, Beijing 100872, China;3. School of Labor and Human Resources, 329 Qiushi Building, Renmin University of China, Beijing 100872, China;1. Department of Business Administration, Faculty of Management, University of Haifa, Carmel Mount, Haifa 3498838, Israel;2. University of Haifa, Carmel Mount, Haifa 3498838, Israel |
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| Abstract: | In this paper, we study the effect of monetary shocks on the Chinese stock market over the period of 2005 to 2011 with the MSVAR–EGARCH model. The evidence suggests that Chinese monetary policies have significantly asymmetric effects on the stock market in different time periods and market cycles. The effects of shocks from interest rate and reserve rate vary across market cycles but effects from money supply and exchange rate do not. Empirical evidence from the non-linear model shows that monetary policy changes increase stock market volatility, even though these monetary policies are often aimed at stabilizing macro-economic activities. The evidence suggests that both the market conditions and the effects on stock markets should be taken into consideration in monetary policy design and implementation. |
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