The role of fiscal policy and monetary policy in macroeconomic control
Abstract:
Fiscal policy and monetary policy are the two major policy pillars of macroeconomic control. Locally, the effects of fiscal policy and monetary policy are the two most important aspects that determine the effectiveness of macroeconomic control. They are related to whether the national economy can maintain smooth operation and achieve long-term growth. Therefore, they have a very important position in a country's policy system.
Keywords: fiscal policy, monetary policy, macro-control
In 1992, the 14th National Congress of the Communist Party of China formally determined the reform goal of establishing a socialist market economic system. Over the past 10 years since then, my country's economic growth has experienced three stages: excessive speed, steady and declining, and steady and fast. Generally speaking, it has shown a good trend of sustained rapid growth and narrowing of fluctuations. In this process, fiscal policy has played an active role as an important means of government macro-control. In particular, due to the fiscal and monetary policy controls adopted since May 2004 and the deepening of the reform of the fiscal and taxation management system, the long-term high investment scale has finally fallen sharply. Both PPI and CPI prices have fallen rapidly, and the money supply has returned to the central bank's target. within the range. This reflects that fiscal policy plays an important role in promoting institutional reform, promoting coordinated development and building a harmonious society.
In 2005, China took substantial steps in strengthening fiscal macro-control, promoting financial management in accordance with the law, and promoting the coordinated development of urban and rural areas, regions, and economy and society. It implemented a policy of “deficit control, structural adjustment, The prudent fiscal policy with the main content of "promoting reform, increasing revenue and reducing expenditure" has promoted stable and rapid economic development and further improved the fiscal and economic conditions.
In 2005, the national fiscal revenue was 3.162798 billion yuan, exceeding the 3 trillion yuan mark, an increase of 19.8% over the same period of the previous year. In 2005, the basic context of China's economic development became clear. While the national economy maintains strong growth momentum, several trends worthy of attention have emerged: First, the domestic consumer price index (CPI) has continued to decline and has now entered an ideal range; second, the reform of the RMB exchange rate formation mechanism has been successfully implemented. The RMB exchange rate has risen steadily after an initial appreciation of 2%; third, net exports have continued to rise after the appreciation of the RMB, trade surplus has increased significantly, and foreign exchange reserves have reached a record high; fourth, the profit margins of industrial enterprises have declined; fifth, some industries have overcapacity The contradiction is prominent.
In this context, the government's implementation of macro-control policies has made the operation more difficult. If we want to maintain the ideal development pattern of high growth and low inflation, there is not much room for adjusting economic growth through interest rates and exchange rates in the short term, improving the import and export balance, improving the economic benefits of industrial enterprises, and reducing long-term investment. Compared with monetary policy, fiscal policy can reduce the overall level of corporate tax burdens, adjust import and export tariff policies, implement differentiated industry tax systems and preferential tax policies, adjust the direction and proportion of public expenditures, and increase transfers. Payment and other measures can promote stable economic growth, suppress and eliminate unhealthy factors that currently exist in economic development, and achieve coordinated development of society, thereby achieving the government's macro-control goals.
Since 2003, open market operations have played a major role in the entire monetary policy control. Beginning in April 2003, the People's Bank of China increased its efforts to hedge foreign exchange holdings by issuing central bank bills; thereafter it issued the "Notice on Further Strengthening the Management of Real Estate Credit Business" to alert commercial banks of real estate credit risks and require commercial banks to Strengthen loan management; in addition, the statutory deposit reserve ratio will be raised from 6% to 7%. Since the first quarter of 2004, the People's Bank of China has issued three major policies: starting from March 25, it raised the central bank's re-lending rate and re-discount rate respectively; starting from April 25, it raised the deposit reserve ratio again by 0.5 percentage points, and implemented differential Deposit reserve ratio system; in October, the People's Bank of China raised the benchmark interest rates for RMB deposits and loans by 0.27 percentage points, and at the same time relaxed the upper limit of loan interest rates and the lower limit of deposit interest rates. The market-oriented reform of interest rates has achieved remarkable results, thus reflecting the role of monetary policy in macroeconomic control.
In 2005, financial macro-control achieved significant results. The People's Bank of China has implemented a prudent monetary policy, strengthened aggregate control, optimized the credit structure, and improved the monetary policy transmission mechanism through market-oriented means to maintain stable financial operations and promote stable and rapid economic development. At the end of November 2005, the broad money supply M2 increased by 18.3% year-on-year, and the narrow money supply M1 increased by 12.7% year-on-year; RMB loans of all financial institutions increased by 2.2 trillion yuan; the credit structure has improved, and short-term loans and bill financing increased year-on-year. 441.3 billion yuan, medium and long-term loans increased by 34.4 billion yuan year-on-year, and agricultural loans increased by 7.5 billion yuan year-on-year.
Both fiscal policy and monetary policy are important means of national macro-control and are important national policies. But there are differences between the two. The means of regulating the economy are different. Fiscal policy is regulated by using fiscal revenue and expenditure, while monetary policy is regulated by regulating the supply and demand of money. The agencies that formulate policies are different. Fiscal revenue and expenditure plans in fiscal policy must be approved by the National People's Congress, while monetary policy is formulated by the People's Bank of China.
Fiscal adjustment is more direct, while monetary adjustment is relatively indirect. Fiscal policy must play an important role in promoting economic growth, optimizing structure and adjusting income, and monetary policy must play an important role in maintaining currency value stability and aggregate balance.
Fiscal policy promotes institutional reform and system construction
Bearing the costs of institutional reform and system construction is a special and important function of my country’s finance. Looking back at the reform and development process of our country, the debt disposal, personnel placement and separation of social functions of enterprises in the reform of state-owned enterprises, the handling of bad debts and capital replenishment in financial reform, the construction of the social security system for many years of debt arrears, and the rationalization of price relationships are all important issues. A large amount of financial funds have been invested in the coordination of interest relationships. This is very different from those countries where the system and system are basically finalized and public finance mainly focuses on the development of social undertakings. From an overall and long-term perspective, increasing fiscal investment in reform is of great significance. If the system is not straightened out, production and transaction costs will increase. Therefore, accelerating reform has obvious institutional benefits. By investing in reform, fiscal policy not only becomes a "shock absorber" to stabilize society, but also becomes a "booster" to improve resource allocation efficiency, enhance social vitality, and maintain long-term rapid development.
Fiscal policies promote coordinated social development and social equity
Since the 1980s, my country’s industrialization, urbanization, marketization and internationalization have accelerated, and changes have occurred in all economic and social fields. Profound changes have occurred, social interest relationships have been rapidly adjusted, and the pressure to coordinate and take into account the demands of all parties has increased. In recent years, finance, through taxation, national debt, subsidies, transfer payments and other means, has paid more attention to promoting the coordinated development of urban and rural areas, especially rural development, focused on promoting coordinated regional development, especially the development of backward areas, and focused on promoting the development of social undertakings, especially compulsory education. The development of the country focuses on promoting the harmonious development of man and nature, especially environmental protection and resource conservation, which regulates the relationship between all parties and maintains social stability. Our country is a big country that is undergoing institutional reform and development is very uneven. The basic national conditions determine that macro policies must control both the total amount and the structure. Fiscal policies must support both economic and social development and reform. Regulation methods must use the market. We must also use administrative power to maintain sustained, steady and rapid economic growth.
Monetary policy maintains price stability and promotes economic growth
The ultimate goal of my country's monetary policy is to maintain the stability of the RMB value and thereby promote economic growth. Maintaining the stability of the RMB currency has two meanings. One is to stabilize prices, and the other is to maintain the basic stability of the RMB exchange rate. The central bank achieves its ultimate goal by using monetary policy tools to regulate intermediary targets. At this stage, the intermediary target of my country's monetary policy is money supply. Current monetary policy tools include open market operations, interest rates, deposit reserve ratios, etc.
Since the reform and opening up, my country’s central bank has actively explored macro-control, flexibly adopted loose or tightening monetary policies in response to macroeconomic conditions, and used a variety of monetary policy tools to control the economy through credit, interest rates, exchange rates, Asset prices and other channels influence the production, investment, consumption and other behaviors of enterprises and residents, successfully controlling inflation and effectively preventing deflation, creating a good macroeconomic environment for the stable and healthy development of the national economy.
From 1993 to 1994, development zone fever, real estate fever, and stock fever emerged in various places. Investment demand and consumer demand expanded sharply, and severe inflation occurred. In accordance with the strategic decisions of the Party Central Committee and the State Council, the People's Bank of China implements moderately tight monetary policies and regulates the total amount and structure of money supply in a timely manner by implementing asset-liability ratio management for commercial banks, flexibly adjusting interest rates, and coordinating the use of local and foreign currency policies. , while vigorously rectifying financial order and standardizing market behavior. Comprehensive management measures, including moderately tight monetary policy, effectively controlled inflation and enabled the national economy to successfully achieve a "soft landing." For another example, the Asian financial crisis broke out in 1997, and the currencies of neighboring countries depreciated significantly. Based on its own actual situation and the requirements of the international situation, China has maintained a stable RMB exchange rate and made important contributions to regional financial stability, winning widespread international praise. Due to the impact of the Asian financial crisis, my country's export demand has decreased, while domestic supply capacity has increased, and the supply of some commodities exceeds demand. Under the combined influence of internal and external factors, the national economy is showing signs of deflation. In accordance with the policy of expanding domestic demand formulated by the Party Central Committee and the State Council, the People's Bank of China implements a prudent monetary policy, appropriately increases the money supply, guides loan investment and promotes economic structural adjustment through policies, regulations and "window guidance", and at the same time implements the financial stability work plan , promote commercial banks to deepen reforms and improve the monetary policy transmission mechanism. The implementation of prudent monetary policy has created good conditions for the implementation of proactive fiscal policy. Under the combined effect of various macroeconomic policies, our country's economy has successfully withstood the impact of the Asian financial crisis. With the establishment and improvement of the socialist market economic system, the People's Bank of China, as the central bank, plays a more prominent role in the macroeconomic control system. At the same time, it undertakes more arduous tasks and faces more difficult challenges.
Conclusion
In 2006, my country will continue to implement prudent fiscal and monetary policies.
Facing good opportunities for tax reform this year, it is expected that new measures will be introduced one after another to deepen the reform of the tax system. The reforms involved include: unifying the income tax of domestic and foreign-funded enterprises, levying fuel taxes, and adjusting tax policies for import and export links. This year's fiscal policy will give full play to the redistribution function of finance and promote fair and coordinated development of society. We will continue to implement a prudent monetary policy, maintain steady growth of money and credit, enhance the proactive regulatory capabilities of monetary policy in maintaining currency value stability and maintaining aggregate balance, maintain basically stable price levels, and promote more coordinated and balanced economic growth.