An Investigation of Exchange Rate Policy in Taiwan

This paper investigates the exchange rate policy in Taiwan since 1980. We identify two important policies adopted by the Taiwanese central bank: stabilization and devaluation policies, and then analyze their efficacy and impact. The empirical results suggest that the devaluation policy does not cause output growth. Moreover, the stabilization policy fails to reduce exchange rate volatility. Finally, we have shown a huge unrealized loss from official intervention, especially during so called the "adjustment-period" in 1986-1989.