Taiwan is usually considered as a small open economy. Trade and exchange rate policies in Taiwan have substantially changed since the mid-1980s. 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 Model that puted forward of Cancer and Hansen (2004) 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, direction and magnitude of the exchange rate change. For that purpose, two variables are tested as thresholds: (1)output gap, (2)exchange rate change. The results indicate that the short-run pass-through is higher when the economy is booming, as well as the exchange rate depreciates above some threshold. And they have important implications for monetary policy and are possibly related to pricing-to-market behavior and menu costs of price a djustment.

abstract: Threshold regression is used to model regime switching dynamics where the effects of the explanatory variables in predicting the response variable depend on whether a certain threshold has been crossed. When regime-switching dynamics are present, new estimation problems arise related to estimating the value of the threshold. Conventional methods utilize an iterative search procedure, seeking to minimize the sum of squares criterion. However, when unnecessary variables are included in the model or certain variables drop out of the model depending on the regime, this method may have high variability. This paper proposes Lasso-type methods as an alternative to ordinary least squares. By incorporating an L_{1} penalty term, Lasso methods perform variable selection, thus potentially reducing some of the variance in estimating the threshold parameter. This paper discusses the results of a study in which two different underlying model structures were simulated. The first is a regression model with correlated predictors, whereas the second is a self-exciting threshold autoregressive model. Finally the proposed Lasso-type methods are compared to conventional methods in an application to urban traffic data. / Dissertation/Thesis / Masters Thesis Industrial Engineering 2015

My research makes three contributions to the literature. The first contribution is to find supportive evidence for the augmented Taylor rule model with orthogonalized bond market variables I build to more accurately describe and forecast the behavior the Federal Reserve, with improved model’s fit both in and out-of-sample. The second contribution to the existing literature is that I find supportive evidence for a macro explanation of industrial firm behavior in the United States. The third contribution of this paper is that I provide a new aspect to understand the monetary policy and the monetary policy transmission mechanism for both monetary policy practitioners and researchers. This research proceeds as the following: Essay one provides a literature review for the research in this dissertation discussing background and theories for both the empirical and theoretical applications of the Taylor rule, a tool for the setting of the federal funds rate. The second essay is designed to understand the setting of monetary policy by the Federal Reserve. I show that augment a simple Taylor rule with bond market information can significantly improve the model’s fit, both in and out-of-sample. The improvement is enough to produce lower forecast errors than those of non-linear policy models. In addition, the inclusion of these bond market variables resolves the parameter instability of the Taylor rule documented in the literature, and implies that the lagged federal funds rate plays a much smaller role than that suggested in the previous studies. The third essay examines the impact of monetary shocks on corporate cash holdings. I find evidence that small industrial firms hold onto cash when monetary policy is too tight and large industrial firms do the reverse both in the short-run and in the long-run. Further tests examine whether the long lasting loose monetary policy results in the pileup of corporate cash holdings. The evidence supports the assumption that industrial firms take the “long lasting lower interest rate” environment to hoard cash to buffer the monetary policy effectiveness.

In this paper, we have employed the Kourtellos et al. (2007) threshold model to examine the relationship between inflation and relative price variability in Hong Kong, Argentina, Germany, Japan, Mexico and Philippines. Empirical results from Hong Kong, Japan and Mexico show that inflation are endogenous variables, and the relationship between these two variables appears to be a V shape for Hong Kong and Japan. However, the relationship appears to be positive for Mexico. Empirical results fail to reject the hypothesis of exogenous inflation for Argentina, Germany and Philippines, and the relationship between these two variables appears to be a V shape for Philippines and Argentina. There is no significant relationship between these two variables for Germany.

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The International Monetary Fund points out that four kinds of financial crisis in the world financial markets currency crisis, external debt crisis, bank crisis and systematic crisis . Taiwan could be happened in bank crisis and could have potentially impaired the economies of Taiwan. That was reason why Government protected banking industry avoiding collapse and bankruptcy. This paper details why Private Equity Fund M&A Taiwan domestic bank and the effects on financial markets. Since 2006 Carlyle Group one of a global private equity investment firm takeover bid for Advanced Semiconductor Engineering Inc (¤é¤ë¥ú¥b¾ÉÅé)--the world's top chip packager for US$5.45 billion- Private Equity Firm had known for Taiwan financial markets. The Government refused the plan due to that takeover bid may weakening the local capital market and leading to an outflow of investment into China. Foreign investment in Taiwan's banking industry is not new, but the acquisition of domestic banks has only become available to Private Equity Fund recently. The domestic banking industry has become a lucrative target for foreign investors not only of the Government has a policy of limiting the quantity of banking branches but also lower P/B in Asia region. Since 1997s, a striking feature in the development of Taiwan banking industry structure is the significant decline in the performance of banks while the steadily increase in the number of bank branches and caused by overbanking in Taiwan. As Taiwan slowly opens its banking industry after second round banking reformation in 2001, global M&A trends also had impacts on Taiwan, foreign financial institutions are increasingly looking to make strategic and financial investments. This paper gives a brief description of the development in the past 10 years, analyzes the driving forces on the merger of financial institutions From this research, we could come to the conclusions as follows: 1. A financial investment in domestic banks is a win-win for the various parties Private equity fund M&A of domestic commercial banks not only a very good source of capital in Taiwan, but also, through the competition of foreign banks, stimulates domestic financial institutions to upgrade operational skills and management, and improve operational efficiency and competitiveness, thus contributing to the upgrading of the financial system. 2. This paper using threshold regression model to find an adequate branch numbers of Commercial Banks industry in Taiwan. We found significant evidence good for the shareholders equity only when the branch numbers are larger than 88. 3. On the view of bank branch, the next target acquired company is Far Eastern International Bank(35 branches) ,Jih Sun Bank(36 branches) , King¡¥s Town Bank(62 branches) ,Taichung Commercial Bank(78 branches).ABN AMRO Bank(Taiwan)M&A Taitung Business Bank, the branches from 5 to 37, not to meet the bank's need for scale economics in Taiwan markets and should be M&A again 4. Private Equity Fund aims to pursue long term total return primarily through investment in equities and equity-related securities but had unique niche in resolving banking risk and corporate governance. also capitalized on the recovery of financial markets after the financial crisis in Taiwan banking indusdry According to experience of Private-Equity Firm to merge to banking industry in Korea Private Equity Fund exit their investments at last within 5-7 years after turned the bank successfully around 5. It's difference type of entering the Taiwan market through the acquisitions of banks, one is strategic investment (e.g.,Citigroup and Standard Chartered) and financial players (e.g., Newbridge Capital, The Carlyle Group).Strategic investment made a goal to construct a plateform to link Taiwan and China

Several reports research the best prediction power of the credit risk models for different industries. The structural models use firm¡¦s information for firms¡¦ structural variables, such as asset value and asset volatility, to determine the time of default, but it suffer from some drawbacks, which represent the main reasons behind their relatively poor empirical performance. It require estimates for the parameters of the firm¡¦s asset value, which is nonobservable. Moody's KMV model is well known and useful among them, but it ignores recovery rate and difference in financial structure and industry. The reduced-form models fundamentally differ from typical structural models in the degree of predictability of the default. Reduced-form models use market data and assume the probability of default is exogenously generated. However, the basel committee for banking supervision proposed that risk is endogenous. The purpose of this paper is using quantile and threshold regression to introduce a new approach which is based on the Moody¡¦s KMV model, the Lu and Kuo ( 2005) and the Altman, Brooks Brady, Resti and Sironi (2005) to the evaluation of the endogenous probability of default and the endogenous recovery rate.

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We analyze how the impact of a change in the sovereign debt-to-GDP ratio on economic growth depends on the level of debt, the stress level on the financial market and the membership in a monetary union. A dynamic growth model is put forward demonstrating that debt affects macroeconomic activity in a non-linear manner due to amplifications from the financial sector. Employing dynamic country-specific and dynamic panel threshold regression methods, we study the non-linear relation between the growth rate and the debt-to-GDP ratio using quarterly data for sixteen industrialized countries for the period 1981Q1-2013Q2. We find that the debt-to-GDP ratio has impaired economic growth primarily during times of high financial stress and only for countries of the European Monetary Union and not for the stand-alone countries in our sample. A high debt-to-GDP ratio by itself does not seem to necessarily negatively affect growth if financial markets are calm. (authors' abstract) / Series: Department of Economics Working Paper Series