Study On The Intertemporal Effects Of China’s Monetary Policy And Fiscal Policy

Since the reform and opening up, China’s economic successfully transform froma planned economy to a market economy. During this period the average GDP growthrate of over7percent, economy is prosperity. Macroeconomic policy measures Chinahas gradually diversified and the application is maturing stage. As the high inflationoutbreak after2008expansionary monetary and fiscal policies implemented, China’smonetary policy and fiscal policy flexibility in the use of development once again ishighlighted. Recognizing intertemporal effects of monetary and fiscal policies arethe key to the success of its development and to dealing with various economiccontradictions. For the study of this aspect， domestic research mainly usequantitative methods, which is lack of a theoretical basis. DSGE model is acutting-edge research methods abroad，and has a solid foundation of macro and microeconomic theory and excellent mathematical nature. In this paper, we discuss thefollowing questions in the new Keynesian DSGE model framework:1) theeffectiveness of macroeconomic policies;2) Cross-term impact of macroeconomicpolicies;3) How to couple macroeconomic policy. To solve these problems，this papermade the following contributions:First, we sort out the process of combing the application of policies since thereform and opening, which is divided into three stages. It provides experience andreference for research policy coupling and calls on the urgency and necessity of studyof intertemporal effects of monetary policy and fiscal policy.Secondly, as to the current vector auto regression methods lack of theoreticalbasis, we construct the closed new Keynesian DSGE model which contains the family,vendors, monetary authorities and fiscal authorities departments. As it has solid microand macro theory basis and excellent statistical properties, it makes the research morerigorous and convincing.Third, monetary policy and fiscal policy is generally being studied in a differentsystem. Our DSGE model contains monetary policy and fiscal policy in a mutualinfluence economic system, making research more appropriate.Fourth, as to the intertemporal effects of macroeconomic policy, we use Bayesianestimation methods, making parameter estimation results more excellent. We study the impact on the money supply and fiscal spending impulse and the transmissionmechanism of intertemporal policy. On this basis, we combine the historicalexperience to analyze the combination of China’s monetary policy and fiscal policy.Research shows that: China’s monetary policy effects are significant, but theduration of its effects are short; fiscal policy effect is hysteretic, and also has a reverseinitial impact, but has long duration. Over time, the impact of policies on economicvariables is not a single positive or negative one. China’s monetary policy on inflation-control is effective and time-sensitive, but fiscal policy on inflation is not effective.On the application of the policy mix，we should use monetary policy to controlinflation-oriented and fiscal policy-oriented policy to promote economic growth.