On the Transmission Mechanism of the Chinese Land Policy in Macroeconomic-control: A Theoretical Study Based on Modified IS-LM Model

The purposes of this paper are to bring land factor into the general fame of national product and develop a new modified ‘IS-LM equilibrium model’, aiming to find out the impacts of land factor on the effective allocation of capital between total supply and total demand constituting gross national product, to analyze the relation mechanism among land factor and macroeconomic variables, and to discuss the theoretical mechanism under which land, fiscal and monetary policy are integrated. Methods employed include econometrics and model analysis. The results indicate that: (i) on the conditions that the equilibrium of supply and demand in land market, the modified IS-LM model taking into account land factor successfully performs transmission mechanism of land policy participation in macroeconomic-control by means of money capital regulation; (ii) the direction and intensity of land policy control are effected by elasticity of land supply and land price, meanwhile different characteristics of land supply elasticity exit in different stages of economic development; (iii) the realization of IS-LM equilibrium requires the aggregate effects of fiscal, monetary and land policy. It is concluded that land policies for macroeconomic-control drives land price higher, and land supply regulation would diminish financial effect. During the economic expansion or recovery period, the effect of expansionary land policy would be counteracted by high land price. During the economic transition or recession period, the government could control economical operation better through tightening land policy.