The Interest Rate Sensitivity of Taiwan’s Real Demand for Money(1971~2002)－Empirical Evidence from the CUSUM and CUSUMSQ Tests

• Main Authors: Mao-lung Huang, 黃茂隆
• Other Authors: Annie-Tsai
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/72025878215747341458

碩士 === 朝陽科技大學 === 財務金融系碩士班 === 91 === When Taiwan’s central bank makes monetary policy, the money supply target zone will be set for reference of policy as well. The application of money supply target zone should be under the stable money demand. Therefore the prediction of money demand is facing serious challenge under the changing of financial environment. A generalized definition of money is adopted due to the need of policy. Scholars continually amend the money demand function to emphasize the importance of money demand. Because of the global economic recession and downward tendency of global interest rates, we are following the American steps to inspire prosperity by reducing the interest rate but failed. The motivation and purpose of this study are induced. This study tried to understand the difference between theory and empirical study. The relationship between money demand and interest rate was not only as Keynes called liquidity effect, but also produced positive relationship by income and price factors of unstable money demand. This study adopted monthly data from between January.1971 and December.2002. We firstly observed chart results and adopted the regression, recursive residuals, CUSUM, CUSUMSQ to test forunderstanding the sensitivity of Taiwan’s money demand with respect to changes in the interest rate in the past three decades. This empirical study discovered that Taiwan’s real money demand function indeed produced the structural change in several key periods and business cycles, especially the relation between money and interest rate. So we think we should emphasize the correction in the short money demand function. At the same time, we also discovered the relation between the money demand and the stock’s return rate was positive, and the results were as the other scholars’. About liquidity trap, we had not yet find the direct evidences, but we discovered the sensitivity between the money demand and interest rate was descending little by little from the recursive results. Especially in year 2001 and year 2002, the structure produced change again from the recursive coefficient estimate charts.