The Effective Coordinationof Fiscal Policy And Monetary Policy

As the most important means of macroeconomic control, fiscal policy and monetary policy has a direct impact on the economic effects of the operation.With the improvement of China's economic opning,the effects of the exchange rate regime on fiscal and monetary policy will be deepen.On July 21,2005,China made reforms to the RMB exchange rate regime,changing from traditionally pegged to the dollar to a managed floating one based on market supply.Therefore,the research of fiscal policy and monetary policy has great theoretical and practical significance in the current exchange rate regime.This article firstly take a review of the related theory and literature about fiscal and monetary policy so that we can find out the breakthrough piont. And then, based on RMB's exchange rate regimeof basket currencies,it analyses the performance of these policy instruments on economic development, prices and current account with innovation.In the analysis ,we will use some times-series approaches ,such as co-integration test,impulse response functions and variance decomposition.The results of the study show that, under the current exchange rate system, China's fiscal and monetary policies'effect can totally complementary, and the fiscal policies dominated.But the monetary policy is in a passive position under the current exchange rate system. Compare to monetary policy, fiscal policy is more effective on economic growth and regulating the current account;At present, China's consumer price index remained high,which the mian factor is the monetary policy. According to the analysis, the article puts forward suggestions:Expansionary fiscal policy with tight monetary policy is the better choose;Use the policy tools reasonably;Gradully improve the formative mechanism of RMB exchange rate;modestly widen the the Yuan's floating range;strengthen the independence and effectiveness of the monetary policy as soon as possible.