An Empirical Research of the Relationship Between Interest Rate and Output Gap in Taiwan

• Main Authors: Chen, Rou-Chi, 陳若綺
• Other Authors: Dr.David L.Kleykamp
• Format: Others
• Language: zh-TW
• Published: 1997
• Online Access: http://ndltd.ncl.edu.tw/handle/70173832290788844899

碩士 === 淡江大學 === 財務金融學系 === 85 === Deposit the fact the behavior of the interest rates have a profound influence on economic activity,there has been little discussiobn in Taiwan of the effect that the business cycle has on interest rate.Conventional thinking is that expansion are associated with rising real rate of interest and recessions are associated woth falling real rates. However, the theoretial foundations for asserting are quite weak-usually relying on static IS-LM models or loanable founds. Moreover, no distinction is typically made between nominal or real interest rates in these assertions. The principal goals of this thesis are to (1)estimate a common measure of the business cycle known as the output gap, and (2)investigate the relation of this output gap to the behavior of both real and nominal interest rates. Such knowledge can be useful in helping to predict quarterly movement in interestrates,and in formulating appropriate count-cyclical monetary and fiscal policies. In the fist part of hte thesis, a system method is emplyed to estimate Taiwan''s potential output taking into consideration the structure of labor market. Theestimated potential output and related output gap are seen to conform quite closewith the indicator-base, business cycle dating of the government''s Directorate-General of Budget, Accounting, and Statistics. In the second part of the thesis, a standard VAR anylysis is undertaken ofthe relationship between interest rates and above output gap. Variance decompositions, impulse resposes, and causality test are performed to ascertain weather the gaphas statistically significant effect on behavior of interest rates. The results can be summarized as follows: The output gap is seen to have a clear and strong effect on the behavior ofinterest rates(both real and nominal), even after the autocorrelative effect s of the interest rates on themselves are taken into account. The effect of the gap appears to confirm the dynamic theoretial model which is presented in the thesis. Finally, from causality test, it is seen that the level of interest rates do not have a measurable effect on the business cycle.