Liu Wei: The Cause, Features and Effects of Current Policy Mix of Opposing Fiscal and Monetary Policies

Abstract: Currently, China’s expansionary fiscal policy and tight monetary policy have formed an opposing policy mix. This is due to the imbalanced macro-economy, which suffers from the pressures of inflation and slow growth. In response to economic changes, China adjusted its monetary policy as the real economy has a weak demand for money. In its reactions to the financial crisis, China adopted a series of policies different from those implemented in European and American countries. For this mix of opposing fiscal and monetary policies to be effective, three conditions should be met: the adjustment of direction should fit the real imbalanced economic situation; financing and investing mechanisms should be market-based; interest rates and exchange rates should gradually become market-determined.

Keywords: Macro control, Fiscal policy, Monetary policy, Mix of easing and tight policy

Source: China Finance and Economic Review, Volume 2, No.1, 2013

About the Author: Liu Wei, born in 1957, is the vice president of Peking University, vice chairman of the Steering Committee for Economics under the Ministry of Education, member of the Theoretic Economics Division of the Academic Degree Committee of the State Council, member of the Standing Committee of the Beijing Municipal Committee of the Chinese People’s Political Consultative Conference and vice chairman of the Chinese Finance Society. He is a holder of government allowance, member of the first batch of Trans-Century Talents (Arts) for the State Education Commission, one of the State Class Persons of National Talents from Ministry of Personnel and six other ministries, and Distinguished Professor of Peking University from the Chang Jiang Scholars Programme under the Ministry of Education.