The Political Economy of Exchange Rate Regimes: Evidence from Hong Kong and Taiwan

Abstract

This paper investigates whether the macroeconomic performance of a smallopen economy depends on the choice of exchange rate regimes. Hong Kong and Taiwan -two economies with many similar macroeconomic characteristics, but different in their choices of exchange rate regimes -provide a good setting to study the relation between the choice of exchange rate regime and macroeconomic performance. We examine the basic facts of growth and inflation and the coefficients' stability of their vector autoregression (VAR), as well as cyclical characters of other aggregate variables in Hong Kong and Taiwan. Our empiric finding indicates that macroeconomic performance is not systematically related to exchange rate regimes.

Analysis of Output Fluctuations in Taiwan: An Application of the IS–MP–AS Model

“…Real GDP is positively associated with real depreciation and stock values and negatively influenced by the government deficit/GDP ratio, the federal funds rate, and the expected inflation rate. In comparison, the results of this study are consistent with Cover et al [2002], Chang et al [2002b], and Rong-I Wu [1998b] that discretionary monetary policy is important, that fiscal policy is ineffective, and that currency devaluation would help the economy and are different from Lin and Lee [2002] that the exchange rate policy is neutral.…”

Exchange and interest rate channels during a deflationary era—Evidence from Japan, Hong Kong and China

“…4 The dynamics of this interpolated GDP variable can be interpreted as those of a monthly indicator for economic output, similar to the monthly GDP estimate for Russia published by the Russian Ministry of Economy, for example. 5 The degree of openness during the last three decades as measured in terms of the ratio of exports plus imports to GDP is around 200% for Hong Kong and 20% for Japan (Lin and Lee, 2002).…”

Weak taxation and constraints of the welfare state in democratized Taiwan

“…After coming into power in 2008, the KMT administration, led by President Ma Ying-jeou, delivered on their electoral promise by twice lowering the corporate income tax rate, first from 25 to 20%, and then from 20 to 17% (Liberty Times, 2010 a , 2010 b ). It has been estimated that this enabled corporations to save up to 80 billion NT dollars annually (Lin et al ., 2011: 88–91). Despite the lowering of corporate tax supposedly being a trade-off for not replacing the Statue of Upgrading Industry, the KMT government managed to enact the Statute for Industrial Innovation in May 2010, containing various corporate income tax deductions for research and development and for professional capacity building (Liberty Times, 2010 a ; 2010 b ).…”

“…One outcome of such advocacy work was the publication of an influential book called The Collapsing Generation in 2011. Taiwan Labor Front, a labor advocacy group that had been very active since the 1980s and was also a member of the Coalition of Fair Tax for Taiwan, collaborated with academics critical of the neoliberalist ideology to author this highly influential book (Lin et al ., 2011). It sold more than 11,000 copies, setting the record for any book published by advocacy groups or academics in Taiwan.…”