The conduct of monetary policy in Taiwan

Abstract

The Geweke's approach to Weiner-Granger causality reveals that broad money is dominantly active in Taiwan. Strong bi-directional causation between broad money and nominal gross national product were detected. Broad money was found to unidirectionally caused prices in terms of either consumer price index, wholesale price index or GNP price deflator. Broad money also unidirectionally caused real GNP and industrial production index at high level of significance. The dominant role of money appears to have improved over the decades as financial deepening gather momentum and gradual disappearing of financial dualism takes place since the mid 1980's.