A Comparative Analysis On The Validity Of Fiscal And Monetary Policies In Promoting Economic Growth

Since China has adopted the reform and open policy in 1978, Chinese economy has developed fast, people's lives improve remarkably, the economic restructuring gradually moves towards thoroughly, the market economy system consummates day by day. In this procession, the Chinese government uses fiscal and monetary policies to intervene the macro-economy, especially in recent years, the scope and density in intervening is unprecedented. The function that government regulates economy has received more and more concerns from the theoretical circle of our country and government departments .And as the two main tools, fiscal and monetary policies, their validities receive more and more attention.Fiscal and monetary policies have their own tools and conducting mechanisms, and have different emphasis points in macro-economic control. In economical globalization procession, fiscal and monetary policies and their cooperation face new choices. How to choose proper fiscal and monetary policies,and how to display their effectiveness to the most, are always the hot topics of the theoretical circle. Basing on related studies in china and abroad, this paper studies on Chinese fiscal and monetary policies theoretical and practically, compares the validity in prompting economic growth of fiscal policy with that of the monetary policy in empirical methods, analyzes the influencing factors of their validities, and puts forward some suggestions about improving their validities.This paper includes 4 chapters. Chapter one introduces brief theories about validity of fiscal and monetary policies. Western economic scholars have different views on validity of fiscal and monetary policies, and recent years, scholars both in China and abroad analyzed it by measurement models and achieves quite abundant. This chapter reviews these theories.Chapter two is the theoretical comparison of validity of fiscal and monetary policies. Focusing on the validity of fiscal and monetary policies, the western economic theoretical circle has done a large amount of researches, and carried on the dispute for a long time among different economics school. Among them the most representative one is the dispute that is carried on between Keynes'doctrine and monetary doctrine, the first section gives a review of it. IS—LM model is widely used in modern macro-economy analysis, and it is the theoretical foundation that governments use fiscal and monetary policies to intervene economy. When researching the equilibrium problem under open economy, Mundell and Flemming expand the IS—LM model, provide a powerful tool for researching this problem. The second and third sections of this chapter analyze the validity of fiscal and monetary policies in IS—LM model and Mundell-Flemming Model separately.Chapter three is the empirical comparison of validity of fiscal and monetary policies. The first section is the gradual empirical test, gives a brief review of the execution of our fiscal policy since reform and open policy, and the execution of our monetary policy since People's Bank of China exercised the Central Bank function independently in 1984. The second section is the inspective empirical test, gives an empirical research on the validity of our fiscal and monetary policies by the methods of regression analysis, ADF test and Granger test. The third section compares the validity of the two policies. Our fiscal and monetary policies are valid in general, and fiscal policy is more valid in regulating economy than that of monetary policy, but both facilitating roles of the two policies in prompting economic growth haven't fully exercised.Chapter four analyzes the influencing factors of the validity of fiscal and monetary policies. The mainly factors of fiscal policy include marginal propensity to consume is lower, resources stock and industrial structure constraint to the development of economy, SME financing, and insufficient coordination with monetary policy. The mainly factors of monetary policy include currency market has been slow to develop; conducting mechanism of monetary policy is ineffective. At last, this paper puts forward some suggestion about improving the validity of fiscal and monetary policies.