Empirical Analysis of Economic Impact of Monetary Policy and Fiscal Policy in China Under Global Uncertainty

Warattaya Chinnakum, Htwe Ko, Jianming Xie, Minglang Wu and Chukiat Chaiboonsri ()
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Warattaya Chinnakum: Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand
Htwe Ko: Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand
Jianming Xie: Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand
Minglang Wu: Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand
Chukiat Chaiboonsri: Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand

IJFS, 2025, vol. 13, issue 4, 1-18

Abstract: This study examines how monetary and fiscal policies affect economic growth in China under global economic uncertainty. We estimate a Markov Switching Regression (MSR) model using quarterly data from 1996: Q1 to 2024: Q4. We also apply Bayesian Model Averaging (BMA) to choose the relevant control variables. During expansions, higher policy rates, government revenue, moderate inflation, FDI inflows, and export growth support growth. Government expenditure can crowd out private investment. During recessions, higher policy rates reduce growth. Government expenditure has limited impact, but revenue collection remains growth-supportive. Global uncertainty steadily reduces growth. Government expenditure shows negative effects, which indicates possible crowding out. The findings support that monetary and fiscal policies coordination may sustain long-term growth in China and strengthen the resilience amid global uncertainty. The Impulse response functions (IRFs) from Bayesian Vector Autoregression (BVAR) confirm the persistence and dynamics of policy shocks under global uncertainty. This study adds to the empirical literature on the role of macroeconomic policies in shaping economic growth in the case of China.

Keywords: monetary policy; fiscal policy; economic growth; MSR; BMA; BVAR; China (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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