China Social Science Review

No.4, 2024

 

 

Zhang Xuelan

 

The interdependence between monetary and fiscal policies dictates that only through coordinated efforts can financial stability be maintained and economic resilience strengthened. Policymakers’ tendencies towards the “growth illusion,” the “attenuation principle,” and “excessive financial elasticity” for optimal policy selection amidst uncertainty, and the spillover effects of financial imbalances, along with the pressing constraints of irreversible long-term structural factors on the policy space of both monetary and fiscal policies, necessitate the creation of sufficient policy buffers and flexibility. In other words, monetary and fiscal policies must remain within their “stability region,” optimizing macroeconomic governance to integrate their decision-making functions without undermining the independence of monetary policy or the sustainability of fiscal policy. More symmetrical policies should be adopted during both economic booms and downturns, and a macro-financial stability framework should be established to secure a sufficient policy safety margin.