China’s Institutional Strength, MonetaryPolicy Coordination and FiscalCrowding-in Effect

摘要

As two main tools of macroeconomic policies, coordination and conflictbetween fiscal and monetary policies have been paid considerable attention by researchers.Under a structural vector autoregressive model that incorporates fiscal and monetarypolicies, this paper analyzes the monetary policy response to fiscal shocks. Our study findsthat during the occurrence of a fiscal shock, the growth rate of broad money supply M2substantially increased, indicating the adoption of an expansionary monetary policy by themonetary authority to fiscal policy expansion. Based on this empirical finding, this paperimproves the dynamic stochastic general equilibrium model to investigate the fiscal policyeffects under China’s monetary policy coordination. Our analysis shows that monetarypolicy coordination will significantly boost the economic stimulus effect of fiscal policy,generating a fiscal crowding-in effect. From the perspective of China’s institutional strength,this conclusion offers a theoretical explanation on the empirical fact of the fiscal crowdingineffect uncovered in the research literature, and offers a policy reference for makingthe proactive fiscal policy more efficient and effective. This paper suggests that China’spolicymakers give full play to the country’s institutional strength by coordinating fiscal andmonetary policies for high-quality economic development.