| Abstract | In recent years, China's money supply has maintained a rapid growth. A large amount of money has flown into the real estate market leading to a real estate bubble, and making the economy to shift from real to virtual. In order to explore the inherent mechanism of the economic shifting from real to virtual, we build an “economic growth – portfolio” model including three types of assets including money, production capital and bubble assets. From the model, we explore the impact of bubble assets on the direction of monetary flows and the efficiency of monetary policy. The results of the model analysis show that the increase in money growth rate has a double effect. The first is the total effect, that is, by reducing the real yield of money, improving the households’ holdings of non-currency assets, and pushing up the savings rate of the economy, thus promoting economic growth. The second is the structure effect, that is, reducing the ratio of the production capital to the bubble assets by affecting the portfolio, and intensifies economic virtualization and restrains the economic growth. When the risk of bubble assets is relatively small, the structural effect will dominate, and the increase of money growth rate would only lead to continuous flow of capital to bubble assets and impede economic growth. Further policy simulation results show that the combination of macro-prudential policy tools and monetary policy can prevent the economy from shifting to virtual, as well as maximize social welfare. |