Study On The Effects Of China's Fiscal Policy Based On The New Keynesian DSGE Model

Fiscal policy is one of the two main tools of macroeconomic regulation and control, The effects of fiscal policy have therefore become one of the key elements of domestic and international economic scholars, and have always been the focus of debate as well as the important reference of macro policy formulation,But so far a few of common conclusions have been gotten. Since 1992, China has experienced a few macroeconomic volatility, According to the different stages of economic development the government implemented different fiscal policy. In the second half of 2008, in order to cope with the international financial crisis, China adopted a new round of expansionary fiscal policy,So the study on the effects of fiscal policy is a hot issue. What are the effects of fiscal policy in China in the end? And what is the transmission mechanism? What is the relationship between fiscal policy and monetary policy, and How to they cooperate or coordinate in order to stabilize the economy and promote the economic growth? The answers to these questions have important significance in the theory and practice.In recent years, the effects of china's fiscal policy have been extensively studied from the perspective of theoretical and empirical, but there are also flaws and shortcomings.Based on the analysis of the results of previous studies and foreign studies, This dissertation applies the new Keynesian Dynamic Stochastic General Equilibrium Model (DSGE) to study China's fiscal policy effects. Through empirical study, this dissertation draws some meaningful conclusions:First, the fiscal and monetary policies of China which use fiscal expenditure and money supply as the main policy tool has a significant stabilizing effect.This conclusion not only supports the Keynesian view, but also is consistent with our actual experience. Therefore, during the recession, expansionary fiscal policy and monetary policy can be implemented to prevent the decline in aggregate demand and increase employment at the same time. On the contrary, contractionary macroeconomic policy can be implemented in an overheated economy.Second, the expansionary fiscal policy that increases fiscal spending might produce crowding-out effect on the private sector. This paper shows that an increase in government spending financed by higher future taxes will lead to a reduction in consumption which coincides with macroeconomic theory.and the result is associated with the assumption of the model to consumers,that is Ricardian consumers. After the financial crisis in 2008, the expansionary fiscal policy stabilized China's economy rapidly, next fiscal policy aims to promote consumption,and transform China's economic growth pattern from excessive dependence on investment and exports to relying on domestic consumption, Therefore, further study has a profound significance.Third, expansionary fiscal and monetary policies will also have consequences that are not conducive to sustained and stable economic development. This paper also shows that the expansionary Macroeconomic policy will lead to rising inflation. Therefore, when the government intervene macroeconomic, it must be alert to inflation risk that might arise, and switch policy timely.Fourth, On the assumption of certain fiscal policy rules and monetary policy rules, China's fiscal-monetary policy interactions tend to counteract each other over the cycle. The simulation results show that the substitutability of fiscal and monetary policy doesn't depend on the types of shocks hitting the economy.So,we argues that it is important to analyze the nature of shocks in the economy in order to select the appropriate policy combination.