The Inflation Effect Of China’s Fiscal Policy From The Perspective Of FTPL

Based on the defect of traditional monetary quantity theory and the inflation that cannot be explained by the Monetarism, The paper is to introduce the Fiscal Theory Of The Price Level (FTPL Theory).The main content of the Fiscal Theory of e Price Level is that, on the basis of the forward expectations, price level as the variable that adjust the government Intertemporal Constraint, depends on the ratio between the present value of the fiscal surplus and the value of government debt. It provides the decision of the price level with the perspective of finance, a new idea to understand and manage inflation.The paper, based on the FTPL Theory is divided into two angles to research the relationship between the Inflation and the fiscal policy since China’s reform and opening up and the decision of the price level. Firstly, in the perspective of policy collocation, by analyzing the the collocation of monetary policy and fiscal policy Over five economic cycles of our country since China’s reform and opening up, it infers to the Initiative and inverse periodically of the fiscal policy. Then, in the perspective of regime switching, it is to exam the role of monetary policy and fiscal policy in the decision of the price level, either in Ricardian regime or in non-Ricardian regime analysis.On demonstration aspect, the paper is to test the relationship between fiscal surplus and government debt on the basis of the government budget equation and based on the CCD (2001).Firstly according to China’s economic cycle fluctuation to establish MS-VAR model namely Markelov transformation model to recognize the policy transformation in our country since China’s reform and opening up. Using annual data from 1981 to 2014 and analysizing he pulse response of the relationship between different variables, it comes to that there are two systems in our country, Ricardian regime or non-Ricardian regime. Then Aiming at the effects of the economic cycle and the problems caused by Ricardian regime, we carry on a inspection on the 2009-2015 monthly data to ensure robustness of the inspection. We divide fiscal surplus into Periodic surplus and structural surplus, to research the feature of our price level decision policy in the post-crisis era by establishing a three-variable VAR Model.These conclusions are as follows, firstly, policy regime switching exists in our country. The price level is up to the monetary policy in 1982-2003 and 2009-2014, belonging to Ricardian regime. The price level is up to the fiscal policy in 2004-2008, belonging to non-Ricardian regime. Secondly, China’s price level decision shows in the different appearance in the post-crisis era. Although China’s price level decision act as Ricardian regime and meets the PVBC equation, we cannot ignore the role of the fiscal policy.So such suggestions are listed in the following, we should change the policy collocation from the collocation between active fiscal policy and passive monetary policy to the collocation between Active monetary policy and passive fiscal policy, and keep the policy developing constantly under policy constraints. From the perspective of the central bank, we should gradually introduce inflation targeting framework, to perfect the marketization of interest rate and make the monetary policy transmission mechanism more smoothly. From the perspective of the government, we should strengthen the management of the government budget and debt management under the macro-prudential analysis.