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Are Policy Rules Better Than The Discretionary System In Taiwan?

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  • James Peery Cover
  • C. James Hueng
  • Ruey Yau

Abstract

This article investigates whether the Central Bank of China in Taiwan (CBC) would have had a more successful monetary policy during the period 1978:3 to 1999:4 if it had followed an optimal rule rather than the discretionary policies that were actually employed. The article examines the use of three different instruments—the rediscount rate, M2, and reserve money—with several different targets—the growth rate of nominal output, inflation, the percentage change in the exchange rate, and the growth rate of a monetary aggregate. Only 4 of 64 rules considered resulted in a statistically significant improvement in the performance of the Taiwanese economy. Given that this study analyzes the economy of Taiwan with revised data that were not available to the CBC in real time, and given that so few of the rules would have improved the economy's performance, it is concluded that the performance of the CBC has been very good.

Suggested Citation

  • James Peery Cover & C. James Hueng & Ruey Yau, 2002. "Are Policy Rules Better Than The Discretionary System In Taiwan?," Contemporary Economic Policy, Western Economic Association International, vol. 20(1), pages 60-71, January.
    • Handle: RePEc:bla:coecpo:v:20:y:2002:i:1:p:60-71
    DOI: 10.1093/cep/20.1.60
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    1. repec:kap:iaecre:v:12:y:2006:i:2:p:203-211 is not listed on IDEAS
    2. Yu Hsing, 2006. "Analysis of Output Fluctuations in Taiwan: An Application of the IS–MP–AS Model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 12(2), pages 203-211, May.
    3. Lee, Hsiu-Yun & Lai, Hung-Pin, 2011. "A structural threshold model of the exchange rate under optimal intervention," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 931-946, October.

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