This paper applies a Factor-augmented error correction model proposed by Banerjee. A, Marcellino. M¡]2009¡^to measure the impact of the United States¡¦ monetary policy on Taiwan. The FECM model has the following advantages. First, it has refined the dynamic factor model, since it allows us to include the error correction terms into equation. Second, we can improve FAVAR model¡¦s shortcomings, the common factor lack of economic interpretation, by using the method of Belviso. F, Milani. F¡]2006¡^. Third, the cointegration can analyze long-run and short-run dynamics of non-stationary variables. Forth, we propose the generalized impulse respone to analyze the FECM model, it doesn¡¦t require orthogonalization of shocks and is invariant to the ordering of the variables. Finally, we indeed prove the interest rate channel does exist in Taiwan and United States through the method of FECM model.

U.S. Treasury Securities are crucially important in many areas of finance. However, zero-coupon yields are not observable in the market. Even though published zero- coupon yields exist, they are sometimes not available for certain research topics or for high frequency. Recently, high frequency data analysis has become popular, and the GovPX database is a good source of tick data for U.S. Treasury securities from which we can construct zero-coupon yield curves. Therefore, we try to t zero- coupon yield curves from low frequency and high frequency data from GovPX by three different methods: the Nelson-Siegel method, the Svensson method, and the cubic spline method. Then, we try to retest the expectations hypothesis (EH) with new zero-coupon yields that are made from GovPX data by three methods using the Campbell and Shiller regression, the Fama and Bliss regression, and the Cochrane and Piazzesi regression. Regardless of the method used (the Nelson-Siegel method, the Svensson method, or the cubic spline method), the expectations hypothesis cannot be rejected in the period from June 1991 to December 2006 for most maturities in many cases. We suggest the possible explanation for the test result of the EH. Based on the overreaction hypothesis, the degree of the overreaction of spread falls over time. Thus, our result supports that the evidence of rejection of the EH has weaken over time. Also, we introduce a new estimation method for the stochastic volatility model of the short-term interest rates. Then, we compare our method with the existing method. The results suggest that our new method works well for the stochastic volatility model of short-term interest rates.

IS-LM methodology was not developed by Hicks alone. Hicks, together with Harrod and Meade jointly contributed to the idea of general equilibrium analysis of products and money markets which were separated treated by Keynes in his General Theory. In order to honor the contribution of the other two economists, we suggested that Hicksian IS-LM framework be renamed Harrod-Hicks-Meade IS-LM model. In IS-LM graphical analysis, the slopes of IS-LM curves and the effectiveness of fiscal and monetary policy are closed related. This thesis has surveyed domestic¡]in Chinese¡^and international¡]in English¡^economics textbooks thoroughly on this matter and discovered that the mistakes are often made or not even mentioned at all. The slope of LM¡]IS¡^curve is determined by interest rate factor , Li¡]Ii¡^and income factor, Ly¡]Cy¡^. If the interest rate factor causes the slopes of two LM¡]IS¡^curves to differ, the expansionary monetary¡]fiscal¡^policy will make LM¡]IS¡^curves horizontal shift to the right. As a result, monetary¡]fiscal¡^policy will be more effective if the LM¡]IS¡^curve is steeper. On the contrary, if the income factor is the cause of the different slopes, the same policy will make LM¡]IS¡^curves shift right vertically. Monetary¡]fiscal¡^policy will be more effective if the LM¡]IS¡^curve is flatter . Once Pigou Effect is present, the aggregate demand curve will become flatter. As a result, monetary¡]fiscal¡^ policy is more¡]less¡^effective than without. Hence, monetary policy is relatively more effective than fiscal policy. In general, a policy-induced shift of aggregate demand curve can¡¦t adopt the horizontal moving method, specifically, for monetary policy, we have to adopt the vertical moving method. As for fiscal policy, the vertical moving method should be adopted , if and only if the income factor causes the different slopes of aggregate demand curves. Neither horizontal nor vertical shift in aggregate demand can be taken for the case when interest rate is the reason leading to the different slopes of aggregate demand curves.

There are much economic and financial data which are restricted by some bounds, such as expenditure shares, unemployment, norminal interest rate, or target zone exchange rate. How to interpret and analyze time series whose behaviors can be well approximated by means of integrated processes, I(1), but are ¡§limited¡¨ in the sense that their range is constrained by fixed bounded is what this thesis develops. One method to analyze bounded variable of this paper is ¡§The Bounded Unit Root¡¨ which provided by Cavaliere (2005), and the other is using Gibbs sampling simulation and trying to recover the part of hidden variables. We would examin some empirical problems that has often been tackled in the literature and we give three time series which include Danish kron/Deutshe mark, Belgium Franc/ Deutshe mark, and Japan 1 mouth interbank interest rate for examples. We conclude that these three time series data are I(0) in classical unit root test framework, but are all I(1) in The Bounded Unit Root test framework. And the results of Gibbs sampling simulation are that Danish kron/Deutshe mark and Belgium Franc/ Deutshe mark are I(0), but Japan 1 mouth interbank interest rate is I(1).

Beginning with the paper of Zhang (2000), we develop a pecuniary transactions cost (TC) approach to build up a monetary endogenous growth model and examine the principal relationships and results concerning nominal interest rate targeting and growth. Meanwhile, according to Hahn (1991) and Eriksson (1995) pointed out there has been a trend decline in labor supply, we introduce the labor-leisure choice of Turnovsky (2000) to amend the utility function and the production function. In the comparison of two macro-models, we can conclude: 1. Under the inelastic labor supply endogenous growth model, if the central bank raises the nominal interest rate targeting will damage to the growth rate. 2. Under the elastic labor supply endogenous growth model, if the central bank raise the nominal interest rate targeting will induce ambiguous effect of the growth rate depending on the labor-leisure choice reaction of nominal interest rate, the bigger reaction may get the higher growth rate.

Financial markets have become increasingly integrated, both domestically and internationally. Asset prices react to other asset price shocks both within and across asset classes. This paper presents a framework for analyzing the degree of financial transmission between money, bond and equity markets and exchange rates within and between the United States and Taiwan. The empirical model concentrates on monthly return over an 11-year period of 1995-2005 for seven asset prices: short-term interest rates, bond yield and equity market returns in both economies, as well as the exchange rate. The results are as followed: First, Johansen cointegration test indicates that there is one cointegrating equation between seven variables. This finding means that there is a long-run equilibrium relationship among the variables. Second, the error correction terms of the US short-term and long-term interest rates, Taiwan short-term interest rate and exchange rate are significant at the 95% level in the Vector Error Correction Model. The deviation from long-run equilibrium is corrected gradually through a series of partial short-run adjustments. The third key result of the paper is that there is a feedback relationship between the US short-term interest rate and equity market return by using the Granger Causality test. Also, the US short-term and long-term interest rates Granger-cause Taiwan short-term interest rates. This result underline that the US financial markets are the main driver of global financial markets.

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Interest rate futures have been traded in TAIFEX (Taiwan Futures Exchange) since 2004, but its trading volume is relatively behind expected. However, based on the scale of cash market and the hedge demand for bond, interest rate futures should have potential to boom. According to the definition of Success or Failure of future contract and suggestion to Taiwan interest rate future, this project intends to analyze Bond Futue and Commerical paper future through six parts: ¡§the size of cash market¡¨, ¡§Trading volume and cash price¡¨, ¡§Concentration in cash market¡¨, ¡§cash and future price¡¨, ¡§Trading volume of interest rate future¡¨, ¡§Cross Hedge Market¡¨. Then searching the dependent variable is suitable for practical model. This article is based on model of Black(1986), which trading volume as independent variable and hedge ratio, cash price, and size of cash market as dependent variable, and add ¡§Promtional policy to interest rate future¡¨, ¡§Trading volume of substitue contract¡¨, ¡§Concentraction ratio of large four traders¡¨ to be new dependent variable. The result reveals thar the key factor to influence trading volume is¡§Promtional policy to interest rate future¡¨, and trading volume of interest rate future will fall without promotion policy. The relation between trading volume and ¡§liquidity of cross hedge market¡¨ is significantly negative, hedgers prefer to use cross hedge than interest rate future. ¡§The size of cash market¡¨ and trading volume are significantly positive. The larger size of cash market is, the less price control power of traders will get.

This paper reexamines the long-run real interest rate parity of the OECD countries by using the unit root test proposed by Ng and Perron (2001) and by the application of simulation to establish the small sample distribution under the null and the alternative hypothesis. By using the small sample distribution of the unit root statistics, we can make sure that first, size distortions are not the reasons contributing to the rejection of the fact that the alternative hypothesis is unit root. Second, the inference that the low power is not necessary causes the not rejecting the alternative hypothesis is correct. If still can not decide which distributions might cause the real interest difference series by comparing the unit root statistics and the relative location of the small sample distribution, we test that whether the series are asymmetric in those countries which we can not decide what kind of distributions they are by the threshold autoregression model proposed by Caner and Hansen (2001). Finally, the empirical results indicate that the RIPH holds in Australia¡BBelgium¡BCanada¡BFinland¡BFrance¡BGermany¡BJapan and Sweden whenever data frequency under linear time series model. Under quarterly data of Italy and United Kingdom and monthly data of Denmark, it turns out that the data have the traits of nonlinear time series model. Besides, the evidence of supporting the long-run real interest rate parity can not be reached and the phenomena that partial unit root exist in United Kingdom and Denmark.

Standard and Poor¡¦s (S & P), a global leading corporation in providing credit rating, published the sovereign rating outlook of Taiwan which was ¡§negative sign¡¨ at the end of 2007. The main reason was that the situation of public finance continued worsening. Based on traditional economic theory, the increased deficits or debts led to higher interest rates, and the increasing burden on enterprises for paying more loan cost, would have more adverse effects on the domestic investment activities. Therefore, this study is intended to explore the relationships among the long-term interest rates of public bonds, the outstanding debts, fiscal deficits, and government expenditure in Taiwan by analyzing 53 seasonal data from 1994:4 to 2007:4 as the samples. The findings indicate that no structure breaking points exist in every variable by using CUSUM test, and almost every variable is integrated of order one in unit root test. The results also reveal that there is no long-term relationship among the deficits, government expenditure, and interest rates using the cointegration analysis. There are probably two reasons for explanation: one is that people will increase saving automatically, and another is that the increased interest rates in the tax cut may be offset by the decreased interest rates in debts financing. Moreover, the outstanding debts and interest rates exist a significant negative relationship of long-term equivalence, and further variance decomposition shows that the effect of debts on interest rates is higher than the effect of interest rates on debts in the variable¡¦s explanatory ability. To explain the significant negative relationship, the possible main causes are liquidity factor, and the psychological anticipation of saving in public bond form directly or indirectly; the secondary cause is the fluctuation of interest rates affects the willingness of government financing.