An empirical study on measurement of transmission lagging effect of monetary policy on the stock market

This paper analyzes the transmission effect of monetary policy on the stock market using a structure vector auto-regression model and thus computes the lagging period of the effect. We employ four variables including lending rate, deposit-reserve ratio, money supply and the deposit rate. After the ADF test and co-integration test, the paper conducts the impulse response analysis and draws each variable´s impulse response figures. Then we use the variance decomposition to detect the lagging period and each variable´s contribution level in affecting the stock market. The findings suggest that there exist transmission lagging effects; in particular, the variable M2´s effect on the stock market is more stable and the variable deposit rate has the fastest effect on the stock market.