China's Fiscal Policy And Monetary Policy And Its Coordinating Effect

Thirty years since the reform and opening up, China's economy has been growing with an average annual growth rate of 9.8 percent, accompanied with fairly obvious fluctuant cycle. In the macro-control of the economy, fiscal and monetary policy has played an important role in stabilizing prices and promoting the healthy development of Chinese economy. Especially since 1992, with the determination of economic system reform goal that is to build socialist market economic system, the function of fiscal and monetary policy has become more and more important and irreplaceable in many ways, such as fighting the severe inflation, achieving the economic "soft landing", getting rid of the influence of the "Asian financial crisis", dealing with the domestic excess liquidity and severe impact of international financial crisis on Chinese economy, and insuring national economic steady and fast growth. Therefore, studying fiscal and monetary policies and their coordination effect can help to predict the macroeconomic situation and provide references for the scientific decision.This dissertation first combs and reviews the considerable amount of literature on fiscal and monetary policy at home and abroad, then analyzes systematically the relevant theories, and summarizes the practice history of fiscal and monetary policies. According to the studies above, it establishes an econometric model about the effect of fiscal policy and monetary policy. Through the collection of data and the corresponding parameter estimation of model, this dissertation makes an objective conclusion about fiscal and monetary policies and their coordination effects. Finally, this dissertation evaluates the fiscal and monetary policy and its coordination effects and puts forward the corresponding policy recommendations.In the aspect of fiscal policy effect, the contribution rate of economic growth made by the active effect of government's discretionary fiscal policy is higher than the contribution rate made by the inner flexible automatic effect. And in the aspect of active effect, the effect of government purchase expenditure far outweighs the effect of tax. On the contrary, in the automatic effect, the effect of tax is greater than the effect of government purchase expenditure. Therefore, in the decision-making process, on the one hand, for the active policy is beneficial to the economic growth, the government should take appropriate positive fiscal policy timely to achieve the desired objectives. On the other hand, the government should pay attention to adjust economy using the automatic stabilizer effect of tax when the active fiscal policy is used.In the relationship between China's money supply and the price and output, the effectiveness of money supply M2 is relatively bigger on the growth of output, and money supply M1 has much greater influences on prices. But the money supply shock only has short-term effects on the price, and it has long-term effects on the output. Therefore, if the monetary policy target lies mainly in the price control, the government should pay attention to the changes of M1; conversely if the target is mainly to prevent overheating of economy, the government should pay attention to the changes of M2.According to the scenarios simulation for the coordination between fiscal policy and monetary policy, this dissertation has found that expansionary fiscal policy, expansionary monetary policy, and the coordination between expansionary fiscal policy and monetary policy, all have the positive effect on the macroeconomic target variables, and they have much greater effects on GDP than that on prices. The effect of fiscal and monetary policies expansion together has greater effects on macroeconomic target variable GDP than that of their expansion independently, while it has less effects on the CPI in the same situation. In addition, the effect of the fiscal and monetary policy on investment is stronger than that on consumption, and their effect on import is much stronger than that on export.The innovation of this dissertation has mainly on the following three aspects. First the analysis method of domestic data is an innovation. Second, it is a new research thought to analyze fiscal policy and monetary policy coordination effect through the establishment of simultaneous equations, and this method is also a new exploration. Last, the dissertation uses models to analyze the effects of fiscal and monetary policy comprehensively and systematically. The method is scientific and the result is practically significant. The suggestions are pertinent to a certain degree, which is an innovation with respect to enhancing the rationality of the government's policy.