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“The Effects of Foreign Capital Inflows on Domestic Asset Prices: An Empirical Study of Taiwan,” Quarterly Bulletin, 36 (1), pp. 3-40, Central Bank of the Republic of China (Taiwan) [in Chinese]. With Kuo-chun Yeh Abstract: 本文探討外人資本流入對於台灣資產價格的影響。研究期間從1991年第1季至2013年第2季。計量方法則是向量自我迴歸模型與反事實模擬。研究結果發現外人資本流入對於股價指數有顯著的影響，對於名目匯率與房價指數的影響則是相對較小。此外，外人資本流入對於資產價格的影響大多是直接的，而不是透過諸如貨幣供給、利率、與金融機構放款等傳遞機制。
“Magnitude and Volatility of Taiwan’s Net Foreign Assets against Mainland China: 1981-2009,“ China Economic Review, 23 (2), pp. 720-728. With Kuo-chun Yeh Abstract: The ongoing private capital inflows from Taiwan to China is a steady concern for Taiwan’s policymakers. According to the official data, Taiwan’s private enterprises have cumulatively invested about US$ 150–280 billion in China since 1987. However, the figures are widely perceived to be an underestimation and there exists a huge gap even between the estimations conducted by different government departments. The purpose of this paper is to re-estimate Taiwan’s net foreign assets (NFA) against China, revising the so-called “dark matter” hypothesis proposed by Hausman and Sturzenegger (2006, 2007). In contrast to the current statistics being limited to registered direct investment or census investigation, the advantage of our model is that direct investment, portfolio investment, and the possible knowledge and property spillovers are included. We show that changes in Taiwan’s NFA against China over GDP are negative in economic and political turmoil, such as the missile crisis in 1995, Asian financial crises in 1997–98, and global tsunami in 2007–09. From 2000, the growth rates we simulate are never lower than the official data till 2009. We also suggest some possible economic causes that lead to the huge Taiwan’s NFA against China.
“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.
“Will Japan, Taiwan or the U.S. be isolated by China? A macroeconomic game approach,” Japan and the World Economy, 22 (1), pp. 59-68. With Kuo-chun Yeh Abstract: In Taiwan, Japan and even the United States, economic isolation has become a major concern due to the growing Chinese economy, which may lead to welfare losses for the isolated countries. On the basis of the framework developed by Plasmans et al. [Plasmans, J., Engwerda, J., van Aarle, B., Di Bartolomeo, G., Michalak, T., 2005. Dynamic Modelling of Monetary and Fiscal Cooperation Among Nations. Springer], this paper establishes a four-player game with an open-loop information structure to measure possible losses by an international policy coordination approach instead of the conventional free trade agreements. We simulate macroeconomic adjustments of the four countries according to the different institutional scenarios and economic shocks. The baseline simulation and sensitivity analyses indicate that Taiwan can get benefit by participating in coalitional mechanisms including China. In addition, most of the feasible policy coalitions cannot come into effect without US participation. This implies that at the current stage the US rather than China should be the main economic partner of Taiwan and Japan to prevent them from being economically marginalized.
“Measuring monetary policy in a small open economy with managed exchange rates: The case of Taiwan,” Southern Economic Journal, 76 (3), pp. 811-826. With and 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.
“Explaining the Fiscal Theory of Price Level Determination and Its Empirical Plausibility for Taiwan,” Academia Economic Papers, 33 (2), pp. 241-277. Abstract: This paper illustrates the propositions of the fiscal theory of the price level (FTPL) using a simple dynamic framework. The FTPL argues that in a Ricardian policy regime, the price level is determined by the monetary variables. In a non-Ricardian policy regime, the government’s solvency constraint provides an additional restriction that helps pin down the price level. This paper begins with the main propositions of the FTPL. These include the price level determinacy under an interest rate rule, the observational equivalence between the Ricardian and the non-Ricardian policy regime, the ineffectiveness of monetary policy on price control under specific fiscal rule, and the tight money paradox by which an aggressive interest rate rule can lead to explosive inflation. We then discuss the critiques of the theory, such as the fragility of the theory and the over-determination of price level. The last part examines whether Taiwan is in a Ricardian or a non-Ricardian policy regime.
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