The Effectiveness of Monetary Policy under Alternative Exchange Rate Regimes – Empirical Evidence from East Asian Countries
Date Issued
2011
Date
2011
Author(s)
Li, Fang-Yu
Abstract
Monetary policies are implemented to achieve some macroeconomic targets. Many variables could affect macro economy, and the exchange rate regime is a more important one among them. Mundell-Fleming model, the representational open macroeconomic model concerning exchange rate regimes and policies effectiveness, indicates that monetary policies affect domestic output more in countries under more flexible exchange rate regimes. An aim of this empirical research is to confirm the conclusions of Mundell-Fleming model. In this research, the structural vector autoregression model (SVAR model) is constructed, and it involves seven economic variables. The monthly data from 1998 to 2007 is collected from official websites of research countries and OECD Statistics Extracts, and six East Asian countries, including Japan, Taiwan, Korea, Indonesia, Malaysia, and China are incorporated into this study. Empirical results approximately support what Mundell-Fleming model demonstrates. The findings suggest that countries with fixed exchange rate regimes could consider changing the regimes into more flexible ones in the future to promote the effectiveness of the monetary policies.
Subjects
Mundell-Fleming model
exchange rate regime
monetary policy
structural vector autoregression model
Type
thesis
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