Research On Cooperation Of Monetary And Fiscal Policy Under Excess Liquidity In China

Partial economy was over-heating in China since 2004 and obvious excess liquidity appears in the end of 2006.The excess liquidity brings chances for China economical reform; meanwhile it causes disasters to the economy, such as accelerating the investment of fixed assets and increasing the difficulty of macro-regulation and control.The excess liquidity is the main reflection of various contradictions in China economy. It is caused by both domestic and international factors. The domestic factors contain inertia of the "double-free" policy before 2004 and the increase of foreign exchange reserves and the imbalances of economic structural and so on. The international factor is the global liquidity surplus. In order to control excess liquidity, China adopts the tight monetary policy and the loose fiscal policy from the end of 2006. Theoretically, these policies are effective. Tight monetary policy can curb inflation and the loose fiscal policy can adjust economic imbalances. However, the excess liquidity in China can't be solved by monetary policy or fiscal policy alone, because the root cause of the excess liquidity in China is the insufficient consumption caused by imbalance in the economic structure. In this paper the cooperation of the fiscal policy and monetary policies is stressed in order to solve the excess liquidity fundamentally.According to the IS-LM model and the reality of China, this paper analyses the problems in the implementation of the tighter monetary policy and the loose fiscal policy. It proposes to strengthen the timeliness of macro-control to avoid the changes of cold or hot economy cycle because of the inertia of the implementation of the policies, to accelerate the marketing pace of the market variables to provide a market-oriented environment, to improve the fiscal policy adjustment ability in the economic structure to solve the imbalance in China's economic development fundamentally and to increase the investment in the social security system to eliminate the worries of the residents and improve the marginal propensity to consume, to adjust the categories and periods of the bonds and to make the short-term treasury bond to play its role in the monetary market, to broaden the financing channels of fiscal investment and loan and to guide social idle funds to the urgent-developing industries and departments to try to resolve the current imbalance of the economic structure through market.