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Reexamining the Macroeconomic Policy Cycle in Taiwan: Evidence from the Central Bank’s Monetary Reaction Function

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  • CHIU, ERIC M.P.

Abstract

This paper examines evidences of opportunistic and partisan incentives in Taiwanʼs macroeconomic policy cycles. The analysis directly investigates how monetary authorities adjust domestic credit in response to different political events. Using data from the Central Bank of China (CBC), over the sample period from 1990 to 2018, the empirical results appear to support the opportunistic theory, as well as suggest that macroeconomic policy cycles are more significant in presidential elections than in the legislative elections. Moreover, as compared with the Democratic Progress Party (DPP), the Kuomintang Party (KMT) has tended to more frequently and extensively conduct expansionary monetary policies before elections, most likely in order to increase the chances of party incumbents being reelected.

Suggested Citation

  • Chiu, Eric M.P., 2020. "Reexamining the Macroeconomic Policy Cycle in Taiwan: Evidence from the Central Bank’s Monetary Reaction Function," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 61(2), pages 89-110, December.
    • Handle: RePEc:hit:hitjec:v:61:y:2020:i:2:p:89-110
    DOI: 10.15057/hje.2020005
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    More about this item

    Keywords

    political business cycle; opportunistic theory; partisan theory; macroeconomic policy cycle; monetary reaction function; Taiwan elections;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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