time：2023-02-01
KAIJI CHEN, HAOYU GAO, PATRICK HIGGINS, DANIEL F. WAGGONER, TAO ZHA
This study examines the impact of government purchases (fiscal policy), represented by large-scale infrastructure investments, on the transmission efficiency of monetary policy in China, set against the backdrop of the economic stimulus plan launched in November 2008. This plan included both accommodative monetary policy by the People's Bank of China and a large-scale fiscal stimulus plan by the State Council, providing a valuable setting to study the interaction between monetary and fiscal policies. The focus of the study is on whether and how fiscal policies, such as infrastructure investments, influence the transmission of accommodative monetary policy to bank credit decisions.
A key challenge in studying this interaction is isolating the effect of monetary policy on infrastructure investments. To address this, the study introduces a two-stage model. The first stage identifies infrastructure activities unaffected by monetary policy, and the second analyzes the effect of monetary policy on credit allocation decisions and the interaction between monetary policy and fiscal policy. The study finds that monetary stimulus policies direct more credit to state-owned enterprises, and the interaction between monetary and fiscal policies is key to this effect. During the crisis, fiscal policy guided monetary easing to increase loans to state-owned enterprises in the infrastructure sector, while crowding out credit to non-state-owned enterprises in other sectors.
This study provides a general framework for understanding the interaction between monetary and fiscal policies, with significant relevance to global economies, particularly emerging markets. The conclusions help explain the effects of economic stimulus policies in both developed and emerging economies. Since China entered the "new normal," the People’s Bank of China has implemented structural monetary tools, enhancing the monetary policy's structural adjustment function.
After the pandemic, promoting economic recovery and high-quality development has been a key task. China's fiscal and monetary policies have been adjusted to stabilize the economy and promote structural improvements. The study highlights the importance of policy coordination in shaping the effectiveness of monetary policy and driving economic transformation.