“Were capital flows the culprit in the Weimar economic crisis?” Explorations in Economic History, 74, 101278.

With Kuo-chun Yeh

Abstract:

This paper examines the role of capital flows in the interwar German economy. We use a calibrated model of sudden stops as our analytical framework and derive four key findings. First, capital flows aggravated the boom–bust cycle of the Weimar economy. Second, these flows were strongly associated —during different periods —with reparations, conditions in the US capital market, and German domestic events. Third, capital flows before 1930 allowed Germany to pay reparations on credit and thus postponed the hour of reckoning when that debt had to be serviced using trade surpluses. Fourth, the German economic downturn in 1931 was due more to capital flows than to productivity shocks or reparations.

 

 

“Alternative Monetary Policies under Keynesian Animal Spirits,” Macroeconomic Dynamics.

With Ya-chi Lin and Kuo-chun Yeh

Abstract:

In this paper, we make the case that an argument for price-level targeting over inflation targeting need not to be based on some overly restrictive assumptions. We adopt a theoretical framework that deviates from the assumption of rational expectation, and that takes into account the cognitive limitations and a “trial and error” learning mechanism of the agents. The (im)perfect credibility of various monetary policies (e.g., a Taylor-type rule, strict domestic inflation targeting, strict consumer price index (CPI) inflation targeting, exchange rate peg, and domestic price-level and CPI-level targeting) may lead agents to react according to their expectation rules, and then create various degrees of booms and busts in output and inflation. Therefore, relaxing the rational expectation hypothesis has potential consequences for policy planning. We find that price-level targeting prevails over inflation targeting even under different expectation formation and even when the announced inflation target is not fully credible. The counterfactual analysis and sensitivity test confirm that CPI-level targeting is the most effective for improving social welfare and stability in an open economy. The business cycles induced by animal spirits are enhanced by strict inflation targeting.

 

 

“Money doctors and their reform proposals for China reconsidered, 1903–29,” Oxford Economic Papers, 68 (4), pp. 1039-1061.

Abstract:

In this paper we provide a quantitative evaluation of foreign financial advising, taking China’s currency reform proposals as an example. Between 1903 and 1929, three Western financial experts proposed a gold (-exchange) standard to China, which at that time was on a silver standard. Using counterfactual simulation, we find that: (1) a gold (-exchange) standard would not have brought price stability to China; (2) and it could have even worsened global deflation during the beginning years of the Great Depression.

 

 

“A silver lifeboat, not silver fetters: Why and how the silver standard insulated China from the 1929 Great Depression,” Journal of Applied Econometrics, 31, pp. 403-419.

With Cheng-chung Lai

Abstract:

We use counterfactual simulations based on an estimated dynamic stochastic general equilibrium model to demonstrate why China was affected less than other major countries during the first two years of the Great Depression. We show that being on a silver standard insulated China from the adverse consequences of the Great Depression by saving the country both from a tightening of monetary conditions and from a detrimental internal deflation. Without the insulation of the silver standard, China might have suffered from a cumulative output loss of between 11% and 23%, and its inflation might have become deflation.

 

 

Tai-kuang Ho (2014), “Dilemma of the Silver Standard Economies: The Case of China,” Southern Economic Journal, October, 81 (2), pp. 519-534.

Abstract:

Exchange rate commitments implied in the silver standard originally anchored China’s monetary policy and the inflation rate in the early republican period. It was believed that China’s free silver standard acted as a natural check on the excessive issuing of notes by warlords and local governments. This consensus view, however, overlooks the fact that the silver standard was inherently unstable because it left no room for monetary policy to stabilize output and inflation. This article employs a formal structural model to show that a fiat currency unlinked to fluctuations in the price of silver that allows government to implement self-adjusting monetary policies would further stabilize China’s output and inflation.

 

 

“Accounting for Taiwan’s first Post-war Negative Economic Growth,” in Taiwan Economic Forecast and Policy, 41 (2), pp. 1-49.

Abstract:

We apply the method of business cycle accounting to Taiwan’s first postwar negative economic growth in 2001. We find that labor (intra-temporal) wedge was the most important factor causing the declines in output and in labor input. Net exports wedge, which represents foreign demand shock, was the most important factor causing the declines in investment. While the foreign demand shock has received attention in the literature, the importance of labor (intra-temporal) wedge to the 2001 recession is new to the literature. These findings are robust to the specification of the technology of the prototype model and the investment adjustment costs. Furthermore, we show that the presence of working capital constraint is the most plausible friction that has generated the observed labor (intra-temporal) wedge.