The Effect Of Fiscal Policy On Inflation

The Great Recession and worldwide financial crisis have exploded fiscal imbalances and brought fiscal policy and inflation to the forefront of policy concerns.Those concerns will only grow as aging populations increase demands on government expenditures in coming decades.It is widely perceived that fiscal policy is inflationary if and only if it leads the central bank to print new currency to monetize deficits.Monetization can be inflationary.But it is a misperception that this is the only channel for fiscal inflations.Nominal bonds,the predominant form of government debt in advanced economies,derive their value from expected future nominal primary surpluses and money creation;changes in the price level can align the market value of debt to its expected real backing.This introduces a fresh channel,not requiring explicit monetization,through which fiscal deficits directly affect inflation.In this paper,through researching documents about the relationship of fiscal policy and inflation,we can clearly understand the transmission mechanism of fiscal policy to inflation,and make clear the characteristics of China's macro policy by combining the actual situation of China's fiscal policy and inflation.Basing on actual data of China,we research the decision mechanism of the price level of empirical research in the framework of the DSGE model of the new Keynesian theory,then determine the country's macroeconomic policy regime,and analysis of the impact of China's fiscal policy on inflation,and analysis the effect of interaction between fiscal policy and monetary policy on the economy,the conclusion is: in the period of 2004-2015,the macro policy system in China mainly shows the policy combination of characteristics of the active fiscal policy and passive monetary policy,the policy combination of active fiscal policy is arbitrary,and through discretionary tax means and government expenditure means of macroeconomic control,coupled with the passive the monetary policy fiscal policy as an auxiliary means of support,so as to ensure the control of the policy combination on the actual level of debt stable government,so that the real economy.The stable operation and the stability of the price level.From the characteristics of the macro policy at this stage,the characteristics of this policy combination are the full expression of the financial theory of the price levelThrough the empirical analysis of China's policies,we can recognize macroeconomic policy regime is combination of active fiscal policy and passive monetary policy,but with the development of economy and the change of economic environment,macroeconomic policy regime will have corresponding change.Therefore,from the perspective of social welfare maximization in the future,policymaking department should make switching from current policy regime to the regime of active passive monetary policy and fiscal policy.In order to achieve regime transformation,we need to do the following: First,it need to make further to accelerate the process of marketization of interest rate in our country,especially increasing the elasticity of nominal interest rates on inflation to monetary policy rules,only in this way monetary policy can give full play to the main role of stabilizing the economy.Second,in the aspect of fiscal policy,it is necessary to further improve the management level of government debt,it makes government revenue,government spending and government debt to fully onsider the government intertemporal budget constraint,so that the financial sector can make the level of government debt to reach a stable level through their own balance means.