Analyzing Effect Of Macro-control Policy

Fiscal and monetary polices are the main economic ways of governmental macroeconomic regulation and control. The validity of fiscal and monetary polices is grand practical problem of limited our country economic policy. It is not only a theoretic problem but also a practical problem.It is difficult to identify the validity of macro-economic policy. The reason is: dynamic state of macroeconomic variables, GDP and price level, etc. is the integrated result of many factors, which include practical factors, policy factors and institutional factors. If carries on the GDP dynamic performance with any kind of factor the statistical analysis is lack obviously purely the persuasive power. Anymore, long standing relation and short standing relation of economic variables are differently. Most of all, policy operation main function in short-term. But the cage place of the series carries on the measurement examination also to have methodology flaw. So, distinguishes of the macroscopic economical quantity observation result factor, in particular to macroscopic policy function effect recognition, should consider each kind of factor fully the influence.In theory, classical school think that capitalistic market economy to deviate balanced level of output and employment, but the market mechanism can effectively operate rapidly, it can make economy to the balanced state rapidly. If the analysis of classic school is right, the government intervention is unessential and can make matters worse. The Keynesians think that monetary policy and fiscal policy can both be used to regulating economic activities. As the Keynesians deepened the Knowledge of the effect of monetary policy, they pretended the monetary policy viewpoint of"against the economic cycle"and"discretionary". The most outstanding feature of monetary school was that they emphasized money was the most important. They thought the effect of monetary policy was better than fiscal policy. They believed that the so called"single rule"should be carried out. The rational expectations hypothesis is the core of rational expectations school .By rational expectations, people can use the massage which he can obtain in public to forecast economic variables. So rational expectations school believed that the government should just insist on single rule rather than intervening the operation of market. Supply school think that the government should transform demand management to supply management. The government should increase general supply to achieve steady-going output and lower price level. And use economic stimulation to regulate the actions of individual and corporation. So the regulate fashion of supply school is using market price mechanism to lead resource collocation.Practically, scholars at home and abroad have research the effect of monetary and fiscal policy from many different angles. Research from the scholars at abroad showed that monetary policy was more effective in the countries which have well-established market and sophisticated financial system. But fiscal policy is more effective in the country whose economic system and financial system is weak. Scholars at home rarely put monetary and fiscal policy in one system to make quantitative analysis. And they do not make distinction between short-term economic policy and long-term adjustment of system.Historical practice of China's monetary and fiscal policy indicates that, the coordination of fiscal policy and monetary policy to some extent indicates the presses of establishing and completing Chinese socialist market economic system. Moreover, data of economic variables indicates that, in recent years, our fiscal and monetary policies have taken long-term effect to macroeconomic growth.The demonstration test directed towards the actual measured monthly data from January 1996 to September 2006. GDP series is selected as output variable. Fiscal revenue and fiscal expenditure are selected as fiscal policy variables. Because our country has been practice the policy operation toward the interest rate and the foundation currency control interest rate actually equal to policy tool. So narrowly defined money supply M1 broad money supply M2 and deposit rate of one-year maturity are selected as monetary policy variables. The long-term trend and short-term fluctuation both make effect on output. We separate the two effects. Based on VAR model, we make demonstration test to the effect which our macroeconomic policy toward economic fluctuation.The results shows: 1. from long-term trend point view, since 1996, macroeconomic policy and output have long-term steady equilibrium relationship. 2. Fiscal policy is more effective to macroeconomic short-term control than monetary policy. 3. Because our country has been practice the policy operation toward the interest rate and the foundation currency control, it will not take place the broad sense currency and the interest rates to move. Therefore, we got some apocalypse operate in our country monetary policy: 1.When we make analysis, we should separate long-term trend from short-term fluctuation. Practically we should combine short-term policy operation with long-term system adjustment. 2. Strengthen the coordination between fiscal and monetary policy. 3. An appropriate increment the interest rate adjusts the frequency, carrying out the interest rate market to turn gradually. 4. Carrying out forward looking fiscal and monetary policy.This paper does the new study in two aspects: First, put monetary and fiscal policy in one system and make quantitative analysis, so that we can distinguish the effect between fiscal and monetary policy. Second, we make improvement in methodology, divide trend relation from fluctuation relation, and distinguish policy effect in two aspects. We separate long-term trend and fluctuation, then build measured model and make demonstration test to the effect of macroeconomic policy.