Author

Mei-Ling Chen

Date of Award:

1998

Document Type:

Dissertation

Degree Name:

Doctor of Philosophy (PhD)

Department:

Economics and Finance

Advisor/Chair:

Basudeb Biswas

Abstract

Taiwan is one of the four smaller Asian economies. Before 1960, Taiwan pursued industrialization policies by limiting imports of manufactured goods, gradually adopting an open and outward-oriented economic policy, believing it would expend exports and yield gained ground.

With this increasingly open and outward-oriented economic policy as the background, we will study the real exchange rate (RER) misalignment in Taiwan over the period 1981-93. The RER plays a critical role in maintaining external competitiveness. Hence, from the policy point of view, this rate should not be allowed to deviate much from its equilibrium level. Since the equilibrium real exchange rate (ERER) is unobservable, it is very important that the concept be based on sound economic reasoning and its measurement should be done as correctly as possible.

It is generally agreed that misalignment in the RER has a negative effect on the economic performance of a country. This dissertation is divided into two essays. The first essay deals with the estimation of ERER by using the Edwards and the Elbadawi approaches and the measurement of the RER misalignment from two different approaches. The second essay investigates the empirical importance of the distinction between the permanent and temporary components of the determinants of the ERER. By using the same reduced form equation from the first essay and reestimating the ERER by employing the techniques of a modern time-series analysis, which is introduced by Steven Beveridge and Charles Nelson, an empirical analysis is presented of the RER behavior.

Included in

Economics Commons

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