On The Coordination Of Fiscal Policy And Monetary Policy In China

There are too significant tools to regulate macro economy: Fiscal policy and Monetary policy. Although the two policies both play a role in adjusting gross demand and gross supply, yet their respective roles are different and not mutually replaceable. To improve their effect on macro economy, fiscal policy and monetary policy must go along with each other.In the past 20 years since our reforming and opening, different combinations of the two policies have been applied, to meet the requirements of varied economic situations. In general, the different combinations can be categorized into two types in chronological order:The first type was in effect from 1978 to 1996. In the meantime, fiscal policy oriented macroeconomic regulation changed into monetary policy oriented. The main purpose was to deal with inflation and "overheated" economy. Macroeconomic regulation from 1993 to 1996, in particular, successfully landed the economy "softly", which richened our experiences to regulate macro economy in the context of market economy.The second type has been in place since 1997, featuring proactive fiscal policy combined with prudent monetary policy. The purpose was to deal with deflation and sliding economy growth. Undoubtedly, the proactive fiscal policy and prudent monetary policy have played positive role in improving macro economy. Yet we have to remind ourselves thatcurrent deflation is not a simple monetary phenomenon, but is closely related to many emerging issues in reforming.Until and unless we handle the overall system involving and according behaviors of firms, families, banks, central bank and government, there will be no more room for the constantly upgraded fiscal and monetary policy to function better, regulating macro economy effectively.