Synergistic effects of fiscal and monetary policy intensities on financial stability: Evidence from China

Strengthening the synergy between fiscal and monetary policies is essential for maintaining financial stability. This paper integrates traditional financial data with indicators derived from internet search big data and employs a Time-Varying Parameter Factor Augmented Vector Autoregression Model (TVP-FAVAR) to construct China’s Financial Stability Index (FSI). Additionally, it assesses the synergistic regulatory effects of fiscal and monetary policies on financial stability under varying policy intensities using the Multivariate Quantile Vector Autoregressive Model (MQVAR). The results indicate that the FSI first declines and then rises, maintaining a generally stable and healthy development trend. Moreover, from the perspective of policy synergy, the combination of fiscal and monetary policies at partial intensities produces better regulatory outcomes, enhancing financial stability and mitigating its decline, compared to the effects of individual policies. The combinations of policy instruments at different intensities generate varying regulatory effects, providing government agencies with a wide array of policy options.