Study On The Effects From Fiscal And Monetary Policy To The Economic Growth Stability In China

At present, China is in the shift period of economic growth, facing the optimization and upgrading of economic structure. So we need pay more attention to the stability and sustainability of economic growth. Drastic economic fluctuation will influence and impede economic healthy development.Fiscal policy and monetary policy are important means of macroeconomic regulation.Important goals of the regulation include screeding fluctuations in the economy and promoting the stability of economic growth. But whether the regulation of fiscal and monetary policy in China can really promote the stability level of economic growth. If fiscal and monetary policy can’t promote the stability level of economic growth,I think we need discover the reasons and know how to impove the fiscal and monetary policy to promote the stability level of the economic growth,which need research in-depth and combine with China’s actual situation.Based on the above background and problems, this paper analyzes the effects of fiscal and monetary policy on economic growth stability from two aspects of theory and empirical analysis, using the annual data of 1952-2014. Firstly, on the basis of theoretical review and comment, the regulation mechanism of fiscal and monetary policy promoting economic growth stability is analyzed. Secondly, it reviews the evolution of China’s fiscal and monetary policy, and analyzes the trend and correlation of fiscal policy, monetary policy and economic growth and volatility respectively.Finally, we calculated the index of economic growth stability using the H-P filter method and established models about the fiscal and monetary policies and the stability of economic growth based on the Feder(1982)’s total production function model.By using VAR model, co integration equation, vector error correction model, impulse response analysis and variance decomposition method, the empirical study is conducted to explore the policy regulation effect.Through theoretical and empirical studies, the following main conclusions are drawn.(1) Theoretical research shows that fiscal and monetary policies are important regulatory tools to maintain steady economic growth,which not only effect on the stability of the economic growth through the demand side, but also effect on stable economic growth through the supply side.However,these two policies effect on the economic growth stability mainly through the demand side.(2) China’s fiscal and monetary policies have a long-term equilibrium relationship between the economic growth stability. China’s fiscal policies have obvious negative effects on the economic growth stability.Monetary policy can promote the stability of economic growth in the long run.The effect of investment on economic growth stability is negative in the long run.By constructing the co integration equation of fiscal policy and monetary policy on economic growth stability, we can see that the fluctuation coefficient of fiscal expenditure is negative, which is not conducive to the stability of economic growth.Main reasons are:In the long run, fiscal policy has crowding out effects.However,China can’t estimate the crowding out effects reasonably at the present stage,which results excessive economic regulation or not in place.Therefore, that is not conducive to the stability of economic growth.At the same time,the lack of institutional constraints on the government action,the incomplete budget system and the weakness of related regulation will result uncontrolled economic regulation and arbitrary government action.Fiscal policy so often can not adapt to the needs of the economic situation, which is not conducive to the stability of economic growth.In the cointegration equation, we can see the money supply volatility coefficient is positive.Volatility of money supply can promote economic growth stability,which show that in the long term, China’s monetary policy promote China’s economic growth stability level and iron the economic fluctuation.In the cointegration equation, we can see investment volatility coefficient is negative.In the long term, investment fluctuation is not conducive to the stability of economic growth. Main reasons are: according to the present China’s situation, government investment accounted for the great proportion of China’s total investment.In addition, the local government at various levels lack effective constraints and objectivity in respect of performance and investment motives,which results low efficiency of government investment and the blind investment.The investment volatility increases economic volatility and reduces the level of stability of economic growth.(3) In the short term monetary policy is not conducive to the stability of economic growth. Fiscal policy is not conducive to the stability of the economic growth either inshort-term or long-term.From the view of the error correction model results, the coefficients of the money supply is negative.So in the short term, the money supply fluctuation has a negative effect on economic growth stability. At the same time the influence coefficient of economic growth stability to money supply fluctuation is not significant, indicating that in the short term China’s money supply is exogenous.The money supply is not able to timely change according to the change of the level of economic growth stability. The promoting effect of money supply to the economic growth stability exists time lags.This reflects in the China money supply is not conducive to the stability of economic growth in the short term.The volatility of fiscal expenditure has a negative effect on the stability of economic growth.So it means fiscal expenditure will also exacerbate economic fluctuations in short-term and reduce the stability level of economic growth. Due to a direct comparison effect of fiscal policy on output, the effect is more obvious.So fiscal policy volatility will rapidly lead to the decline of the economic growth stability level.At the same time the trend analysis can be found that China’s fiscal expenditure’s fluctuation frequency and range is great,reflecting the fiscal policy lack scientific and objective in the aspect of intensity and frequency. Therefore, we should avoid excessive use of fiscal policy and pay attention to use the fiscal policy and monetary policy together.(4) Monetary policy is more significant to the economic growth stability on the view of the long term.But the fiscal policy influence the economic growth stability very prominently in the short term,whose effect is stronger than the monetary policy.The variance decomposition results show that the contribution degree of monetary policy to the economic growth stability in the short term is less than fiscal policy’s contribution.Monetary policy is more significant to the economic growth stability on the view of the long term. So it is necessary to pay attention to the coordination of these two policies on the regulation of macroeconomic.Based on the above conclusions, there are three main policy suggestion:Firstly,Optimize the efficiency and structure of fiscal expenditure.Improve the financial budget system.Strengthen financial supervision and management.Strengthen economic analysis and forecasting and timely assess the “crowding out effect” and policy lag.Secondly,Strengthen the control of the total amount of money supply.Adopt flexible and various tools of monetary policy and improve the directional control ability.Deepen the financial market system construction and the market-oriented reform to improve the central bank’s independence so as to strengthen the strength of monetary policy.Thirdly,Achieve a flexible coordination of fiscal and monetary policy. Improve the early warning mechanism for economic fluctuations to improve the effectiveness of fiscal and monetary policy’s feedback about the economic fluctuations.The feature of this paper may be: The stability of economic growth index was calculated using the H-P filter method; This paper established models about the fiscal and monetary policies and the stability of economic growth based on the Feder(1982)’s total production function model.