A Study of China’s Hybrid Monetary Policy on the Stock Market

Abstract

China's monetary policy has been progressively modified and transformed. In this study, the correlation between Chinese monetary policy and the stock market is investigated. The CSI 300 index, the trading volume of constituent stocks of the CSI 300 index, and M2 and R007 were selected to represent the stock market, quantitative monetary policy and price monetary policy, respectively. The transmission mechanism and regulatory effects of China's hybrid monetary policy on the stock market were studied. Stock prices and trading volume will rise when the People’s Bank of China (PBOC) puts money into the market; if the central bank raises interest rates, stock prices and trading volume will decline, and the regulatory effect of price-based monetary policy will be more significant than that arising from quantitative monetary policy. China's hybrid monetary policy has a dampening effect on stock prices and trading volume and effectively restrains the bubble of the financial market.