Monetary Effects of Fiscal Operations:Theoretical Mechanisms,Empirical Evidence,and Policy Implications
The theory of the monetary effects of fiscal operations establishes a theoretical bridge between fiscal policy and finance,holding significant practical relevance for economic and financial stability in modern China.This study employs the sectoral balance sheet approach and constructs a"multi-layered dual"model of money supply to reveal the general laws governing the supply of base money and deposit money.The empirical investigation of the monetary effects of fiscal operations is conducted using simultaneous equations,structural vector autoregression(SVAR)models,and Granger causality tests.The results confirm a direct causal link between fis-cal operations and money supply variations under the single treasury account system.Fiscal opera-tions exert a"disturbance effect"on money supply;fiscal revenues cause an equal and simultane-ous annihilation of both base and deposit money,while fiscal expenditures result in their equal and simultaneous creation.The disturbance effect of fiscal operations on base money supply is more intense compared to that on deposit money.The actual supply of deposit money in China is nearing the upper limit determined by the existing base money and the statutory reserve require-ment ratio,suggesting that the annihilation of base money due to fiscal revenue collection could trigger liquidity tensions in the interbank market.Consequently,it is recommended to establish a regular coordination and communication mechanism between the fiscal authorities and the central bank,enhance the treasury's cash management deposit system,and target cash balance management systems to allow fiscal policy to play a more active role in stabilizing finance and employment.
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