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- Title
Measuring Monetary Policy in a Small Open Economy with Managed Exchange Rates: The Case of Taiwan.
- Authors
Tai-kuang Ho; Kuo-chun Yeh
- Abstract
We use sign restrictions to identify monetary policy for a small open economy with heavily managed exchange rates. We apply the proposed sign restrictions to the Taiwanese case, where existing studies tend to find no clear effect of monetary policy shocks on the output and price level. Our principal findings are that a contractionary monetary policy shock causes a permanent and significant decline in real gross domestic product, broad money, and price level. Our identification scheme is able to avoid the puzzling impulse responses from which other identification schemes more or less suffer. The fact that monetary policy has not been correctly identified may have led existing studies to conclude that monetary policy is ineffective.
- Subjects
TAIWAN; MATHEMATICAL models of monetary policy; FOREIGN exchange rates; GROSS domestic product; PRICE levels; PRICE regulation
- Publication
Southern Economic Journal, 2010, Vol 76, Issue 3, p811
- ISSN
0038-4038
- Publication type
Article
- DOI
10.4284/sej.2010.76.3.811