Research On Effects Of Shocks To Taiwanese Economic Fluctuations

Due to the importance in both theory and practice, economic fluctuation is the kernel problems in mainstream economics research. According to modern business cycle Theory, economic fluctuation is the result of shock effect and propagation mechanism, and there are no cycles without shocks. It is just the variety of shock effects acting on the economic system that the macroeconomy is driven from the normal path, forming economic fluctuation.The consensus that economic fluctuation is motivated by economic shocks has been achieved in economists to some extent. But different schools have different apprehensions on shock's production mechanism, reaction mechanism and transion mechanism. Keynesians, taking the investment demend as center, analyze the reasons of the marginal efficiency of investment's aleration and its impact on economic fluctuation. Keynesians also emphasize that economic fluctuation are mainly from gross demend shock. Monetarists lay stress on the short-term effect of monetary shock, attributing economic fluctuation to the exogenous monetary disturbance. They consider that the deviation of money supply growth from the alternations of the endogenous demand leads the fluctuations in output and employment.New classical economicbusiness cycle theory regards that stochastic monetary factors result in the economic cycle fluctuation. Real business theory considers disturbances and shock from the real ingredients are the causes of economic fluctuation, and the most important shock is that from supply-side technology. Neo-Keynesian uses the real and nominal shocks to analyze the economic fluctuations, and they emphasize that the price and wage stickiness based on microeconomy should be the main causes of economic fluctuations.As for propagation mechanism, Keynesians highlight wage and price rigidity; monetarists emphasize the incomplete infromation and rational expectations; real business cycle theorists shed emphasis on intertemporal subsitution of labor; and Neo-Keynesians cast light on price and wage stickness and incomplete financial markets. In short, identifying and analyzing both economic shocks and its transimission channels's effects and mechanism on economic fluctuation is the essential prerequisite for researching the causes of economic fluctuation and implementing macroeconomic policies.In researching the causes as well as the effects of Taiwan economic fluctuation, this paper basically launches according to real and nominal shocks, and their final effects on supply shocks from economic supply or demand side. This paper consists of seven chapters. Chapter one is the introduction describing the research background, research topic and research methods. Chapter two is theoretical summary for the propagation mechanism of economic fluctuations. Chapter three, respectively, summerizes the classical characteristics and typical facts, and recapitulates the co-movement between Taiwan and its chief trading partners with the growth rate's cycle method and HP filter decomposition. Based on RBC theory, chapter four establishes a closed RBC model as well as a open one to compare the motive mechanisms and effects from real shocks, mainly respresented by the technology shocks. Further this chapter analyzes Taiwan economic fluctuation's shock effects from industry fluctuation. On the basis of Neo-Keynesian theory, chapter five establishes a DSGE model with a financial accelerator in order to analyze the motive mechanisms and effects from nominal shocks, chiefly respresented by the monetary shocks. Also this chapter tests the efficiency of Taylor Rule in Taiwan monetary policies. Chapter six sets up a SVAR model according to AS-AD theory. This model includes output and price reflecting Taiwan's economic fluctuation and investigates their dynamic effects on economic fluctuation from the supply shock respect. Finally in chapter seven, the summarization and research prospect are given.Through Taiwan's characteristics and the empirical analysis of nominal and real shocks as well as supply-demand shocks, this paper mainly comes to the following conculsions:a. The analysis of Taiwan's economic typical characteristic facts shows that the economic fluctuation path switches from high volatility to low one. The type of fluctuation in the later period is a former peak; the property of fluctuation is increasing except in the year of 2001, and the scope of fluctuation tends to stablization. The stylized facts of Taiwanese economic fluctuations show that the main macroeconomic time series are all reflecting persistence in varying degrees. Most variables are not strong in volatility and show positive interval relationship with GDP except for some small amount showing negative relation. Besides, Taiwan' economic fluctuation reveals positive interval relationship with Mainland, Japan, USA and ASEAN in bilateral trade.b. The simulation results of a small Taiwanese open RBC model with convex portpolio adjustment costs show that the small open model, compared to a closed model, can give a better explaination for Taiwan's major stylized facts of economic fluctuation. Impuls response function of real shocks reveals that real shocks possess a significant pushing effect on Taiwanese economic fluctuation. The essential of real shocks are the results of joint actions of Taiwan economic system adjustment, the industrial structure upgrade, the foreign investment expansion, technological innovation promotion, population quality improvement and such like that.c. According to DSGE model, in the price stickness and financial market friction circumstances, monetary policy shocks have certain effects on Taiwan's major macroeconomic variables. After comparing the expected value from Taiwan's monetary policy and real value of short-term interest with Taylor Rule, we find Taylor Rule has historical efficiecy in Taiwan monetary policy.d. SVAR model indicates that output fluctuation is the result of joint action of supply and demand shocks in short-term. And in the long-term run, supply shocks dominate. By dividing economic fluctuation into two parts explained by gross supply and gross demand respectivly, and measuring the relative strength which drives Taiwan's price and output fluctuations, we find that the leading position of supply-demand shocks which lead to economic fluctuation changed in Taiwan's different development period.