The Optimal Choice of China's Fiscal and Monetary Policy Mix
- YANG Yuanyuan, YU Jinping & YIN Lei
- YANG Yuanyuan, YU Jinping (Nanjing University, 210093)YIN Lei (Nanjing University of Finance and Economics, 210023)
The report to the 19th National Congress of the Communist Party of China points out that promoting high-quality economic development is the basic requirement to be followed while laying down development guidelines, formulating economic policies and implementing macro-control. The paper constructs a NK-DSGE model, uses the Markov-Switch method to identify China's fiscal and monetary policy coordination system, and studies the economic volatility under different policy combinations through numerical simulation to find the optimal policy mix for sustainable and stable economic development. The experience shows that China has mainly followed the macro-control paradigm based on the active fiscal policy and passive monetary policy combination since the reform and opening up. Numerical simulation shows that the combination of active monetary policy and passive fiscal policy with full consideration of price and debt stability can better absorb economic fluctuations caused by exogenous shocks while the active monetary policy + passive fiscal policy combination proves to be the least effective in smoothing the economic cycle. Therefore, the paper suggests that the government should change macroeconomic regulation from the combination of active fiscal policy and passive monetary policy to that of active monetary policy and passive fiscal policy in order to improve the efficiency of macro-control and create a stable macroeconomic environment for driving high-quality economic development in the new era.
JEL：E63, O11, O23
- Economic Transformation, Macroeconomic Policy Coordination, Economic Stability, New Keynesian Model