Does an undervalued currency merit economic growth?: Evidence from Taiwan
Whether an undervalued currency is an attainable industrial policy for developing countries’ sustained development has recently invoked many discussions. This paper studies the case of Taiwan after first determining the misalignment of Taiwan’s currency by estimating the fundamental equilibrium...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Economists' Association of Vojvodina
2012-01-01
|
| Series: | Panoeconomicus |
| Subjects: | |
| Online Access: | http://www.doiserbia.nb.rs/img/doi/1452-595X/2012/1452-595X1201037Y.pdf |
| _version_ | 1828231888665313280 |
|---|---|
| author | Yan Ho-Don Yang Cheng-Lang |
| author_facet | Yan Ho-Don Yang Cheng-Lang |
| author_sort | Yan Ho-Don |
| collection | DOAJ |
| description | Whether an undervalued currency is an attainable industrial policy for developing countries’ sustained development has recently invoked many discussions. This paper studies the case of Taiwan after first determining the misalignment of Taiwan’s currency by estimating the fundamental equilibrium real exchange rate. Three sub-periods for Taiwan’s currency exchange rate misalignment are identified: undervaluation in the periods 1981-1986 and 1998- 2008 and overvaluation during 1987-1997. Second, we use a vector autoregression (VAR) model to examine the Granger causality between exchange rate misalignment and GDP, by incorporating export and investment variables. The evidence shows that exchange rate misalignment does Granger cause GDP and it mainly comes from the third sub-period when the Taiwan dollar was undervalued. From past experience and the current economic doldrums of the last resort of global exports - the United States - currency undervaluation is not a validated strategy upon which emerging markets can wishfully impinge. |
| first_indexed | 2024-04-12T19:11:33Z |
| format | Article |
| id | doaj.art-b76edc13bbf6443eac54b89afe62e3a9 |
| institution | Directory Open Access Journal |
| issn | 1452-595X |
| language | English |
| last_indexed | 2024-04-12T19:11:33Z |
| publishDate | 2012-01-01 |
| publisher | Economists' Association of Vojvodina |
| record_format | Article |
| series | Panoeconomicus |
| spelling | doaj.art-b76edc13bbf6443eac54b89afe62e3a92022-12-22T03:19:52ZengEconomists' Association of VojvodinaPanoeconomicus1452-595X2012-01-01591375710.2298/PAN1201037YDoes an undervalued currency merit economic growth?: Evidence from TaiwanYan Ho-DonYang Cheng-LangWhether an undervalued currency is an attainable industrial policy for developing countries’ sustained development has recently invoked many discussions. This paper studies the case of Taiwan after first determining the misalignment of Taiwan’s currency by estimating the fundamental equilibrium real exchange rate. Three sub-periods for Taiwan’s currency exchange rate misalignment are identified: undervaluation in the periods 1981-1986 and 1998- 2008 and overvaluation during 1987-1997. Second, we use a vector autoregression (VAR) model to examine the Granger causality between exchange rate misalignment and GDP, by incorporating export and investment variables. The evidence shows that exchange rate misalignment does Granger cause GDP and it mainly comes from the third sub-period when the Taiwan dollar was undervalued. From past experience and the current economic doldrums of the last resort of global exports - the United States - currency undervaluation is not a validated strategy upon which emerging markets can wishfully impinge.http://www.doiserbia.nb.rs/img/doi/1452-595X/2012/1452-595X1201037Y.pdfundervaluationexchange rate misalignmentnet foreign assetsterms of tradeGranger causality |
| spellingShingle | Yan Ho-Don Yang Cheng-Lang Does an undervalued currency merit economic growth?: Evidence from Taiwan Panoeconomicus undervaluation exchange rate misalignment net foreign assets terms of trade Granger causality |
| title | Does an undervalued currency merit economic growth?: Evidence from Taiwan |
| title_full | Does an undervalued currency merit economic growth?: Evidence from Taiwan |
| title_fullStr | Does an undervalued currency merit economic growth?: Evidence from Taiwan |
| title_full_unstemmed | Does an undervalued currency merit economic growth?: Evidence from Taiwan |
| title_short | Does an undervalued currency merit economic growth?: Evidence from Taiwan |
| title_sort | does an undervalued currency merit economic growth evidence from taiwan |
| topic | undervaluation exchange rate misalignment net foreign assets terms of trade Granger causality |
| url | http://www.doiserbia.nb.rs/img/doi/1452-595X/2012/1452-595X1201037Y.pdf |
| work_keys_str_mv | AT yanhodon doesanundervaluedcurrencymeriteconomicgrowthevidencefromtaiwan AT yangchenglang doesanundervaluedcurrencymeriteconomicgrowthevidencefromtaiwan |