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Long swing in appreciation and short swing in depreciation and does the market not know it?—the case of Taiwan

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  • Chung-Hua Shen
  • Shyh-Wei Chen

Abstract

This paper finds an asymmetric swing in Taiwan's exchange rate. In contrast to the developed countries, whose exchange rates exhibit long swings in both appreciation and depreciation regimes, the long swing only exists in an appreciation regime for Taiwan. A short swing, however, is found during a depreciation regime in Taiwan. These results may reflect to some extent the central bank's preference, which is to have a let-it-go policy during depreciation and a slowdown policy in appreciation. In addition, it may simply reflect the Japanese yen's influences.

Suggested Citation

  • Chung-Hua Shen & Shyh-Wei Chen, 2004. "Long swing in appreciation and short swing in depreciation and does the market not know it?—the case of Taiwan," International Economic Journal, Taylor & Francis Journals, vol. 18(2), pages 195-213.
    • Handle: RePEc:taf:intecj:v:18:y:2004:i:2:p:195-213
    DOI: 10.1080/1016873042000228330
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    References listed on IDEAS

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    1. Kilian, Lutz & Taylor, Mark P., 2003. "Why is it so difficult to beat the random walk forecast of exchange rates?," Journal of International Economics, Elsevier, vol. 60(1), pages 85-107, May.
    2. Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September.
    3. Diebold, Francis X. & Nason, James A., 1990. "Nonparametric exchange rate prediction?," Journal of International Economics, Elsevier, vol. 28(3-4), pages 315-332, May.
    4. Shen, Chung-Hua & Hakes, david R., 1995. "Monetary policy as a decision-making hierarchy: The case of Taiwan," Journal of Macroeconomics, Elsevier, vol. 17(2), pages 357-368.
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    Cited by:

    1. Shyh‐Wei Chen & Chung‐Hua Shen, 2004. "Price Common Volatility or Volume Common Volatility? Evidence from Taiwan's Exchange Rate and Stock Markets," Asian Economic Journal, East Asian Economic Association, vol. 18(2), pages 185-211, June.
    2. Mendy, David & Widodo, Tri, 2018. "Two Stage Markov Switching Model: Identifying the Indonesian Rupiah Per US Dollar Turning Points Post 1997 Financial Crisis," MPRA Paper 86728, University Library of Munich, Germany.
    3. Xie, Zixiong & Chen, Shyh-Wei, 2019. "Exchange rates and fundamentals: A bootstrap panel data analysis," Economic Modelling, Elsevier, vol. 78(C), pages 209-224.
    4. Shyh-Wei Chen, 2010. "Testing the hypothesis of market efficiency in the Taiwan-US forward exchange market since 1990," Applied Economics, Taylor & Francis Journals, vol. 42(1), pages 121-132.
    5. Suman Das & Saikat Sinha Roy, 2021. "Predicting regime switching in BRICS currency volatility: a Markov switching autoregressive approach," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 48(2), pages 165-180, June.
    6. Nikolsko-Rzhevskyy, Alex & Prodan, Ruxandra, 2012. "Markov switching and exchange rate predictability," International Journal of Forecasting, Elsevier, vol. 28(2), pages 353-365.
    7. Chen, Shyh-Wei & Shen, Chung-Hua, 2004. "GARCH, jumps and permanent and transitory components of volatility: the case of the Taiwan exchange rate," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 67(3), pages 201-216.

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