Deflationary Conditions, Monetary And Fiscal Policy Coordination, Operational Issues

The study is focused on the problem of the coordination of monetary-fiscal policy in China deflation from 1996 to 2000. During this period both planning and market economic system has evolved in China.Since 1996 China national economy has been continually run down. GDP and Price and M2 have been run in lower lever. Effective demand decrease and economic structure isn rational. Real economy and monetary supply have decreased, which mean that China has been suffering from the deflation. Practices show that the effect of fiscal policy is significant and monetary policy not so. One of the reasons is that the coordination of both policies is not well, so more research is necessary.Both theory and practice have shown: (1) Monetary-fiscal policy is two of the most important means of government controlling national economy in modern market economic system. If we want to effectively regulate the economy, we must use coordinately monetary-fiscal policies to get the best policy-combination-effect. The key of the coordination lies in establishing the dynamic operating mechanisms that two policies share out the work and help one another; (2) From 1979 to 1999, the coordination of monetary-fiscal policy is well in China, but it has lots of defects too, such tltt the two departments were short of enough coordination, and the opcrating mechanism of the policies was not perfect; (3) China deflation has bccn caused Lw a lot of factors which include the structural surplus of aggregate supply, the inadequacy of aggregate demand, the defect utVIcconomic system, the non-standard of govcrnment actions, the irrational 8tructureof money supply and the price expectation; (4) the operation of tWo poIicies arenow faced with tbur obstructions, tkc poor fiscal capacity thc inadcquatc financcincomc, the wcak systcms basi8 and tbe contradiction8 of thc PoIicies.ln the denation period tkc coordination of monctary-fiscal policy must hcbased on the economic growth, tbe price trend, the money dcmand and supply theintcrest ratc and the cxchange rate. tln ordcr to accelcrate tbc nationaI economy effcctivcIy, tbesc strategic8 arencce88ary:a) ConstruCt the in8titutional basi8 of the coordination of thc monctary-fiscaIpoIicy.b) Improve the opcration mechanism of the monetary-fiscal policyc) Comp1etc the coordination mechanism of the monetary-nscal policyd) Establish the pcrfect adjustmcnt system of thc two policics.ln order to relicve thc denation of national economy in thc short term, thesepolicies arc necessary:a) Choosc the appropriate policy combination model.b) Regulate the opcration of thc monctary-fiscal poIicy.c) Strengtllen the adjustment capacity of thc monctary-fiscal policy.d) Enhance the coordination function of thc two policies in diffcrcnt fields.