Spillover Effects Of The Expansionary Monetary And Fiscal Policy Of The U.S. On China’s Inflation

Past-crisis era was a long-run economic reconstruction process. It containednot only deep recession but also recovery opportunity. In order to improve theeconomic landscape, the financial and the job markets, the US had carried outexpansionary monetary and fiscal policy for reinvigorating the economy. Theseanti-circle operation exerted tremendous power on the damaged departments. Visibly,loose economic policies could stabilize the markets’ confidence and be verynecessary during this period.However, because of the globalization, economical spillover effects could beunavoidable. Though the US had taken the policies for rescuing, other countries’policy choices had some passiveness. By using the game theory, this paper arguedthat the following countries should maintain the policies’ independence during therecession and seek cooperation in the reviving era to fight against the inflation.In fact, both China and the US implemented the loose polices in the past-crisisera and increased the money supply. So there was a concern that if these operationcould lead a high price? Would the QE do harm to other economic entities? Whatwas the main source of China’s inflation? According to these queries, this essaythought the American policies couldn’t shock China’s price in some degree onaccount of the low external purchasing power, capital account control and theappreciation of the RMB. This paper also used mathematical models and SVARmodel to verify the above hypothesis. Therefore, China’s inflation had a high possibility that it came from its own macro policies.We could see that the big difference between China and the US was the focus ofthe policies. China leaned to use fiscal policy but the US preferred the monetarypolicy. This phenomenon maybe resulted China’s inflation some fiscal nature. So itoffered us a new view of the relationship between inflation and the policies. Thisissue could convert into the FTPL theory’s applicability in China. Through systemanalysis, this essay had approved the correctness of the hypothesis. The fiscal natureof the China’s inflation was very unique during past-crisis era. Why could this exist?To answer this question, we compared China’s policies to Roosevelt’s New Deal in1930s. From the history, we could easily found that Keynesianism just hadshort-view in economic development which would exert negative impact in the longrun. The logic that the government was mad about GDP also induced China’seconomic imbalance. By using empirical analysis, China’s applicability of FTPLtheory had passed tests. From the results we could conclude that firstly China’sinflation had a strong fiscal nature in2010to2011; Secondly, MF model had showedthe economic imbalance of China; Finally, the imbalance could worsen privatedepartments and give rise to policy dependence.In the visible, the key point to fight against inflation was controlling thestrength of macro policies. During the operation process, we should focus oncrawling pegs of debts and inflation monitoring. In the future, we needed to payattention to the weakness of our own economy and to realize the economic reform.In dealing with the external policies’ spillover effect, we shouldn’t easily jump toconclusions without strict verification. We should seek strong evidence on the sourceof our country’s high price. Only in this way, the economy’s sustainabledevelopment would come true ultimately.