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Asymmetry of Exchange Rate Pass-Through for TaiwanHsu, Chien-hao 13 July 2011 (has links)
Taiwan is usually considered as a small open economy. Trade and exchange rate policies in Taiwan have substantially changed since 1990s.Not only has trade been liberalized, but exchange rates of the New Taiwan Dollar(NTD) were also allowed to fluctuate.
This paper applies the Threshold Regression with Endogenous Threshold Variables(THRET) Model that puted forward Kourtellos, Stengos and Tan (2007) and combines the expectation-augmented Phillips curve with a threshold for the pass-through. The paper examines whether the short-run magnitude of the pass-through is affected by the business cycle. For that purpose, the important variable is tested as thresholds: output gap change. The results indicate that the short-run pass-through is higher when the the economy is booming, as well as the exchange rate depreciates above some threshold. And showed in this has conformed to the business cycle theory which Goldfajn and Werlang (2000) , Carneiro, Monteiro and Wu (2002) , Muinhos (2001) proposed.
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