The Coordination Of Fiscal And Monetary Policies In Response To Systemic Financial Risks

Fiscal and monetary policies play an extremely important role in preventing and resolving systematic financial risks.At present,the situation of domestic and foreign financial risks is undergoing profound changes.Strengthening the coordination of fiscal and monetary policies in resolving systemic financial risks has important theoretical and practical significance.This article focuses on addressing the issues of “what to rescue”(resolving scope),“when to rescue”(standard of intervention)and “how to rescue”(policies and means)in the process of implementing the fiscal and monetary policies to resolve the systematic financial risks.It sorts out the experience and practice of China and other countries in coordinating their fiscal and monetary policies to resolve the systematic financial risks,applies the cost-benefit method to analyze the standard of when fiscal and monetary policies should intervene and when to quit,introduces risk premium and expectation into the IS-LM-BP model combined with the reference and criticism of Modern Monetary Theory for analyzing the fiscal and monetary policy choice under the conditions of systematic financial risks,uses the Vector Autoregressive(VAR)Model and Vector Error Correction(VEC)Model plus Autoregressive Conditional Heteroskedasticity(ARCH)Model to analyze the impact of Chinese fiscal and monetary policies from 2008 to 2019,and also probes into the current hidden systematic financial risks and the issue of how to resolve.The conclusions from this article through its study are mainly the following.Firstly,the scope of resolving the financial risks.The principal objectives of the fiscal and monetary policies in resolving the systematic financial risks are eliminating market failure,defusing the systematic financial risks.It includes four aspects: rescuing financial institutions,rescuing financial markets,rescuing the real economy and rescuing social expectations.Secondly,the standard of intervention.Policy makers need to consider the expected benefits and costs of policies that involve systemic financial risks.The expected benefits involving improvements of financial institutions,financial markets,real economy and social expectations.The expected costs include direct cost,exchange rate,interest rate and inflation rate and other overshooting costs,moral hazard cost and opportunity cost.If the expected benefits are greater than the expected costs,it's worth to intervene.It also discusses the optimal policy resource input scale.Thirdly,policy instruments.In addition to traditional fiscal and monetary policy tools,the fiscal authority can,if necessary,provide guarantee for the central bank's funds,while the central bank can provide a low-interest rate environment and indirect financial support for the implement of expansionary fiscal policy.Fourthly,the policy effect.After introducing risk premium and expectation into the IS-LM-BP model,if due to the purpose of counteracting the systematic financial risks,the fiscal and monetary policy stimulation is continuously carried to excess,may trigger exchange rate crisis and output decline.Fifth,challenges of coordination mechanism.The emergency decision-making and coordination mechanism in the abrupt financial risk situation still need to improve.The implementation of the mechanism for turning the central bank's profits to the state treasury has some kind of flexibility.The linkage between monetary policy regulation and fiscal policy needs to be strengthened.Sixth,the effect of China's fiscal and monetary policy.During the period from 2008 to 2019,the above policies achieved rather significant effects in supporting the economic growth,also have some extent of impact on the market expectation,but have much less or no significant impact on the stock market trend and fluctuation.Seventh,thehidden systematic financial risks under the new circumstance.It mainly includes the risks of Sino-US economic,trade and financial relations,real estate market,stock market leveraged funds,the risk of concentrated default on urban investment bonds,and small and medium-sized financial institutions represented by urban commercial behavior.Therefor,this article puts forward several suggestions for the policy-making.The first is to strengthen monitoring and analyzing the systematic financial risks.The second is to formulate contingency plans for responding to and resolving the systematic financial risks.The third is to establish and improve a contingency mechanism for dealing with systemic financial risks.The fourth is to strengthen the endogenous links in the coordination of the fiscal and monetary policies.Fifth,under the normal circumstances,try to keep the fiscal and monetary policies in a normal state.The intensity of fiscal and monetary policies in the early stages of the crisis can exceed expectations,but balance the intensity and pace well during implementation.Sixth,cope with the hidden systematic financial risks in a safe and reliable way.When necessary,the fiscal policy can breakthrough the limit on the deficit rate or guarantee for the central bank,while the monetary policies can indirectly provide liquidity and financing support for the fiscal policies,or support the economy more directly.Regarding financial market risks,the market generally regulates itself,and the government should not intervene.If the market fails,a liquidity crisis occurs,and may lead to a greater crisis,the government can properly intervene the market when necessary,but it cannot try to change the market trend.According to the principle of marketization and rule of law,we can deal with the risks of small and medium-sized financial institutions safe and orderly,by clarifying the responsibilities of financial institutions,shareholders,and local governments,and providing appropriate support from the central government when necessary.Seventh,persist in combining risk management with reform and opening,and gradually solve risk issues during development.Eighth,strengthen international cooperation and form a synergy of policies.