(研究领域：宏观经济学)Asset price, macroeconomic variables and monetary shock Cointegration analysis of Chinese Market This work was supported by DAAD ( German Academic Exchange Service) and CSC (Chinese Scholarship Council), whose financial support for my PhD study is gratefully acknowledged. I would like to thank Prof.Dr. Gerhard Illing at University of Munich for his supervision and advices.Ying Deng 邓 瑛Department of Economics, University of Munich, GermanyXinhua School of Finance and Insurance, Zhongnan University of Economics and Law, ChinaAbstract: In this paper, I investigate whether the current economic activities are cointegrated with the stock price in China on the basis of the response of stock prices to macroeconomic fluctuations. I set up a hypothesis and theoretical model using the vector error correction model. This cointegration relation indicates direct long-run and equilibrium relations between asset price and four macroeconomic variables in China, i.e. industrial production, consumption expenditure, monetary supply (M1) and consumer price index. Together with the result of Granger causality test, it also demonstrates that stock price index and consumption index as well as the monetary supply adjust to the previous equilibrium error. I also give an explanation from the point of institutional deficiencies in Chinese economic and financial system, and present some policy implications from the cointegration analysis, including deepening the reform of financial system and making a low long-run inflation objective inclusive asset price as a new nominal anchor.Keywords: asset price, macroeconomic variables, cointegration, monetary policy1. IntroductionThe relationship between stock prices and macroeconomic variables has been predominantly investigated assuming that on one hand, macroeconomic fluctuations are influential on stock prices through their effect on future cash flows and the rate at which they are discounted (Chen et al.1986; Geske and Roll 1983; Fama 1981), and on the other hand stock prices are influential on macro economy through conduction channels of monetary policy, such as wealth effect, Q effect, liquidity effect etc.A number of macroeconomic factors have been used to represent risk in mature stock markets. Earlier studies were mainly motivated by the Arbitrage Pricing Theory (Ross 1976), and could be perceived as global asset pricing models (Ferson and Harvey 1998). Some of the popular factors used in these models were industrial production, inflation, interest rates, and oil prices (Hamao 1998; Harris and Opler 1990). The logic and methodologies used, therefore, are based on the understanding that expected returns are dependent upon these risk factors. The direction of the relationship is thus assumed to be unidirectional, and from macroeconomic variables to stock returns.Dynamic linkages between stock markets and macroeconomic variables are equally important, which turn to be a bi-directional relationship, or cointegrational relationship, where stock price also plays an important role in transmitting macroeconomic policy, such as monetary policy to the real economy and influences the macroeconomic variables. Fluctuations of the stock market, which are influenced by monetary policy, have important impacts on the aggregate economy. Transmission mechanisms involving the stock market are of four types: 1) Tobins Q effects on investment, 2) firm balance-sheet effects, 3) household wealth effects on consumption and 4) household liquidity effects Mishkin, Federic S.(2001), “The Transmission Mechanism and the Role of Asset Prices in Monetary Policy”, NBER, Working Paper, No.8617.However, such linkages have been investigated only recently and extensively for developed markets (Mukherjee and Naka 1995; Lee 1992). Dynamic linkages in the emerging markets of less developed countries, such as China have been ignored, with a few exceptions. Such relationship is considerable, however, mainly due to the overwhelming influence of governments in economic activity. Stock markets have been established only recently, the volume of trade is low, and company-specific information is not always timely or of high quality. Therefore, stock markets are inclined to influence from economic policy. The foucus of this paper is on investigating the cointegration relationship between the stock price and some macroeconmic variables in China, with a comparison to a U.S.A. In order to establish the causal ordering, Granger causality tests and VECM model are employed where, for a long-term dynamic equilibrium between asset price and macroeconomic variables, a corrected cointegration equation will be set up. And as a discussion for the result of cointegration analysis, I will finally present some important reasons from the point of institutional deficiencies of Chinese economic and financial system and give some policy implications.2. Literature ReviewDynamic