Optimal policy rule with target zone:theory and application to Taiwan

• Main Authors: Li, Yu Chun, 李宇峻
• Other Authors: 毛維凌
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/60060144659112505111

碩士 === 國立政治大學 === 經濟學系 === 98 === This paper discusses the policy rule used by Central Bank of the Republic of China(Taiwan) with target zone to the exchange rate dynamics. We focus on the recent phenomena on the exchange rate of NTD, and try to figure why the NEER of NTD is always underestimated. Due to the regime of Central Bank of the Republic of China(Taiwan), we combine two extensions into the basic Krugman(1991) target zone model which are Chen, Funke and Glanemann's soft edge target zone model(2009) and Torres's stochastic intra-marginal intervention pattern. And we estimate the parameters with simulated method of moments(SMM). By this two extensions, we conclude that there is strong honeymoon eect to the exchange rates at the lower bound, but the honeymoon eect is very weak at the upper bound. This conclusion is matched with the empirical data, and explains why the NEER of NTD is always underestimated.