Taiwanese Dollar Research Articles

Does crude oil fire the emerging markets currencies contagion spillover? A systemic perspective

The paper lays the empirical foundation for the significance of Crude in explaining the variation in implied volatilities (IVs) of emerging markets nations constituting the MSCI emerging market index. Guided by the significance of Crude as a significant regressor, the study aims to investigate the association of currency IVs with Crude using a connectedness-based approach by Diebold and Yilmaz (2012). The spillover pattern highlights the strong interconnectedness of Asian currencies, with the Taiwanese dollar and Thai Baht feeding the systemic risk, thus the currencies to watch out for the policymakers. An important finding is that the Polish zloty possesses a high spillover risk in the Eastern European economies due to improved economic conditions and a large flow of capital during quantitative easing. On the other hand, Russia is a huge exporter of Crude and shares a limited spillover relationship with Crude, implying domestic macroeconomic conditions and geopolitical risk contribute more to the ruble fall. Based on the spillover pattern of IVs, a portfolio universe selection and weight allocation with dynamic balancing have been devised for investors of the forex market for spillover risk minimization. Findings show that the Chinese Yuan and Chilean Peso are the most favorable currency alongside Crude. However, Indian Rupee serves as the most promising currency pair to be inducted with Crude. The study is particularly beneficial for investors and portfolio managers investing in the forex market to induct the assets in the portfolio to mitigate systemic risk fear, especially during times of distress.

The welfare effects of extending unemployment benefits: Evidence from re-employment and unemployment transfers

This paper investigates the welfare effects of extending unemployment benefits by comparing the search effort responses to income transfers when employed (i.e. re-employment bonus) and unemployed (i.e. extended benefits). Specifically, we use administrative data on the universe of unemployment spells in Taiwan from 2001 to 2011 and evaluate effects of providing a re-employment bonus and extending unemployment benefits. Our results suggest that the provision of re-employment bonus increases job-finding hazards and results in the positive fiscal externality. The behavioral costs per New Taiwanese Dollar (NTD) of initial spending on bonuses is -0.61. In contrast, extending unemployment benefits reduces the rate of unemployment exit and generates the negative fiscal externality. We integrate the estimated policy effects with a search model with liquidity constraints to identify the value of extending unemployment benefits captured by the marginal rate of substitution (MRS) between consumption when unemployed and employed. We find that the estimated MRS of extending benefits is around 1.5 to 2.5 — the marginal value of transfers when unemployed is about two times larger than that when employed. Finally, the marginal value of public fund for extending UI benefits is between 1.3 and 2, suggesting the welfare gain from benefit extension is larger than its welfare cost by more than 30%.

Evaluating the efficiency of currency portfolios constructed by the mining association rules

We propose a new portfolio, an association currency portfolio (ACP), constructed by the recommendations of the mining association rules, to strengthen mean-variance efficiency. We empirically analyze the efficiency of currency portfolios using 15 countries' exchange rates denominated by the Taiwanese Dollar. Our findings suggest that the ACPs outperform other portfolios constructed by the Pearson's correlation model. The mining association rule is useful for recommending candidate currencies for international investors, to help them establish efficient portfolios.

Nonlinear mean-reversion in Southeast Asian real exchange rates

We find nonlinear mean reverting tendencies in Southeast Asian currencies by applying the newly developed nonlinear unit-root test by Park and Shintani (2005). First, with the US dollar as the numeraire currency, we find that 63% of the real exchange rates of Southeast Asian currencies turn out to be stationary. However, with the Japanese yen as the numeraire currency, we find no evidence in favour of Purchasing Power Parity (PPP) for most currencies in Southeast Asia, except for the Korean won and Taiwanese dollar. These findings imply that Southeast Asian currencies may not form a yen-dominated Asian exchange rate system. Second, when the dollar-based real exchange rates of Southeast Asian countries are nonlinear mean reverting, we find that the mean-reverting process could be well described by the Exponential Smooth Transition Autoregressive (ESTAR) model, rather than the Double Threshold Autoregressive (DTAR) or Double Logistic Smooth Transition Autoregressive (DLSTAR) model. Our results are reinforce...

Nonlinear Mean-Reversion in Southeast Asian Real Exchange Rates

We find nonlinear mean-reverting tendencies in Southeast Asian currencies by applying the newly developed nonlinear unit root test by Park and Shintani (2005). First, with the U.S. dollar as the numeraire currency, we find that 63% of the real exchange rates of Southeast Asian currencies turn out to be stationary. However, with the Japanese yen as the numeraire currency, we find no evidence in favor of purchasing power parity for most currencies in Southeast Asia, except for the Korean won and Taiwanese dollar. These findings imply that Southeast Asian currencies may not form a yen-dominated Asian exchange rate system. Second, when the dollar -based real exchange rates of Southeast Asian countries are nonlinear mean-reverting, we find that the mean-reverting process could be well described by the ESTAR model, rather than the DTAR or DLSTAR model. Our results are reinforced by impulse response function and forecasting analysis.

Dementia care costs and the patient's quality of life (QoL) in Taiwan: Home versus institutional care services

Organizing optimal care for demented older people is a complex health care issue. Controversies of service models for demented patients should be balanced between cost of care, placement, and quality of life (QoL). The main purpose of this study was to explore the optimal model of dementia care in Taiwan by evaluating the care cost, patients’ QoL and healthcare settings. Overall, 140 pairs of demented patients and their primary informal caregivers were enrolled (89 community-living and 51 institute-living). Compared to institute-living subjects, community-living subjects were significantly better in cognition, physical function and QoL. The annual direct cost of institutional care was significantly higher than community care (464,193 New Taiwanese Dollar (NTD) vs. 144,047 (NTD), p < 0.001), but indirect cost was significantly higher in home care (287,904 NTD vs. 35,665 NTD, p < 0.001). The care cost of home care subjects with low physical dependence was significantly lower than institutional care subjects, but the care cost of home care subjects with high physical dependence was significantly higher than institutional care subjects. Physical dependence was the significant determinant of QoL for demented patients in this study. In conclusion, demented patients with low physical dependence may be cared in the communities with support and those who had high physical dependence may be cared in the institutes in terms of the balance of QoL and the care cost.

An Alternative Futures Hedge for Minor Currencies

In a world of trade among nations using different currencies, every exchange of goods, services, or assets taking place between economic actors of different nations requires an accompanying currency transaction. If foreign exchange rates were fixed, this would be little more than a formality and not a potential source of market distortion. In the current world, however, the currency exchange rates are often very volatile and can affect market prices when viewed from outside the economy. Individuals with risk-averse preferences seek to minimize the potential losses possible from their currency positions through the use of currency hedging tools. When a nation‘s currency hedging instrument (e.g. a currency futures contract) is traded in liquid market, it is easy to hedge the risk posed by holding a foreign currency position. In these market situations, currency futures contracts can be purchased for hedging the currency position. However, when a nation‘s currency hedging instrument is not traded in liquid markets, it is impossible to hedge the risk by the direct hedging. Hence, a proxy for the currencies of small economies (i.e. minor currencies) must be found. This study examines five nations‘ currencies, the Fiji Dollar, Cyprus Pound, Maltese Lira, Taiwanese Dollar, and South Korea Won in order to determine an effective currency futures hedge for the three minor currencies in the above list : the Fiji Dollar, the Cyprus Pound, and the Maltese Lira. The results of this study‘s tests indicate that multiple futures contract hedge proposed in this study is an appropriate hedging tool for both the Fiji Dollar and the Cyprus Pound. In the case of the Maltese Lira, the results are less conclusive and suggest that the selection of the appropriate futures contracts should be improved.

Analysing and Forecasting the New Taiwanese Dollar against the US Dollar (1992) - Financial and Economic Forecasting (chapter 17)

In this chapter, we analysing and forecasting the New Taiwanese Dollar against the US dollar. Forecasting models were tested using the three variables; exchange rate, money supply and Balance Remittance. Both VAR and VARMA models accurately predicted turning points and no false fluctuations were predicted. The model and approach can be expanded to consider other important aspects of Taiwanese trade.

Wavelet Multiresolution Analysis of High-Frequency Asian FX Rates, Summer 1997

FX pricing processes are nonstationary and their frequency characteristics are time-dependent. Most do not conform to geometric Brownian motion, since they exhibit a scaling law with a Hurst exponent between zero and 0.5 and fractal dimensions between 1.5 and 2. This paper uses wavelet multiresolution analysis, with Haar wavelets, to analyze the nonstationarity (time-dependence) and self-similarity (scale-dependence) of intra-day Asian currency spot exchange rates. These are the ask and bid quotes of the currencies of eight Asian countries (Japan, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand), and of Germany for comparison, for the crisis period May 1, 1998 - August 31, 1997, provided by Telerate (U.S. dollar is the numeraire). Their time-scale dependent spectra, which are localized in time, are observed in wavelet based scalograms. The FX increments can be characterized by the irregularity of their singularities. This degrees of irregularity are measured by homogeneous Hurst exponents. These critical exponents are used to identify the fractal dimension, relative stability and long term dependence of each Asian FX series. The invariance of each identified Hurst exponent is tested by comparing it at varying time and scale (frequency) resolutions. It appears that almost all FX markets show anti-persistent pricing behavior. The anchor currencies of the D-mark and Japanese Yen are ultra-efficient in the sense of being most anti-persistent. The Taiwanese dollar is the most persistent, and thus unpredictable, most likely due to administrative control. FX markets exhibit these non-linear, non-Gaussian dynamic structures, long term dependence, high kurtosis, and high degrees of non-informational (noise) trading, possibly because of frequent capital flows induced by non-synchronized regional business cycles, rapidly changing political risks, unexpected informational shocks to investment opportunities, and, in particular, investment strategies synthesizing interregional claims using cash swaps with different duration horizons.

Before the fall: were East Asian currencies overvalued?

Two major approaches to identifying the equilibrium exchange rate are implemented. First, the concept of purchasing power parity (PPP) is tested and used to define the equilibrium real exchange rate for the Hong Kong dollar, Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, New Taiwanese dollar and the Thai baht. The calculated PPP rates are then used to evaluate whether these seven East Asian currencies were overvalued. A variety of econometric techniques and price deflators are used. As of May 1997, the HK$, baht, ringgit and peso were overvalued according to this criterion. The evidence is mixed regarding the Indonesian rupiah and NT$. Second, a monetary model of exchange rates, augmented by a proxy variable for productivity trends, is estimated for five currencies. An overvaluation for the rupiah and baht is indicated, although only in the latter case is the overvaluation substantial (17%). The won, Singapore dollar and especially the NT$ appear undervalued according to these models.

On the won and other East Asian currencies

Five East Asian currencies—the Indonesian rupiah, Korean won, Singapore dollar, Taiwanese dollar and the Thai baht—are modeled in the framework of a monetary specification augmented by the relative price of non-tradables. This relative price variable proxies for the Balassa–Samuelson effect in East Asian real exchange rates identified in previous studies. All of the currencies fit the long run implications of various types of monetary models, according to Johansen multivariate co-integration tests. Exchange rates do the bulk of adjustment toward equilibrium, except in the cases of the Thai baht and the New Taiwan dollar. For these currencies, interest rates and money supplies move to restore equilibrium. In ex post simulations, the out-of-sample fit of the estimated models is relatively good for the won, Singapore and New Taiwan dollars, and for the baht, although in no case is the exact magnitude and timing of the currency crashes predicted. The estimated model completely fails to track the rupiah out-of-sample. Copyright © 1999 John Wiley & Sons, Ltd.

On the won and other East Asian currencies

Five East Asian currencies—the Indonesian rupiah, Korean won, Singapore dollar, Taiwanese dollar and the Thai baht—are modeled in the framework of a monetary specification augmented by the relative price of non-tradables. This relative price variable proxies for the Balassa–Samuelson effect in East Asian real exchange rates identified in previous studies. All of the currencies fit the long run implications of various types of monetary models, according to Johansen multivariate co-integration tests. Exchange rates do the bulk of adjustment toward equilibrium, except in the cases of the Thai baht and the New Taiwan dollar. For these currencies, interest rates and money supplies move to restore equilibrium. In ex post simulations, the out-of-sample fit of the estimated models is relatively good for the won, Singapore and New Taiwan dollars, and for the baht, although in no case is the exact magnitude and timing of the currency crashes predicted. The estimated model completely fails to track the rupiah out-of-sample. Copyright © 1999 John Wiley & Sons, Ltd.

Measuring Misalignment: PPP and East Asian Currencies in the 1990's

The concept of purchasing power parity (PPP) is used as an equilibrium exchange rate measure to evaluate whether eight East Asian currencies were overvalued on the eve of the 1997 currency crises: Hong Kong dollar, Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso. Singapore dollar, Taiwanese dollar and the Thai baht. Using both the Johansen and Horvath-Watson cointegration test procedures, the purchasing power parity tests are performed on bilateral (US$, yen) and multilateral exchange rates, using consumer price indices, producer price indices, and price indices of export goods. The second deflator yields the greatest evidence of stationarity. I find that the Hong Kong dollar, ringgit, Philippine peso, and baht were overvalued as of May 1997, according to the PPP criterion, while the won and the New Taiwan dollar were substantially undervalued. The implied deviations are compared against those obtained using simple trends in consumer price index deflated real rates; these trend based calculations typically suggest larger overvaluations than their producer price deflated counterparts.

On the Won and Other East Asian Currencies

A sticky price monetary model (Frankel, 1979) of exchange rates is applied to quarterly data on seven currencies: The Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, Taiwanese dollar and the Thai baht. The model proves empirically unsuccessful, except in the case of the baht and, to a lesser extent, the Singapore dollar. A monetary model, augmented by the relative price of non-tradables, is developed. This relative price variable proxies for the Balassa-Samuelson effect in East Asian real exchange rates identified in Chinn (1997b). The Korean won is best described by this modified model, while the Indonesian rupiah, Philippine peso and Taiwanese dollar also fit the model's long-run predictions. On the other hand, the Malaysian ringgit proves difficult to econometrically model. This inability is disappointing because this currency has recently been allowed to float more freely.

Testing the Purchasing Power Parity Theory: A Case of the Taiwanese Dollar Exchange Rate

From July 1978 to April 1989 Taiwan adopted a snake system by allowing the foreign exchange rate to fluctuate within a narrow band of the centered...

Weekly Pattern of Exchange Rate Risks: Evidence from Ten Asian-Pacific Currencies

This paper examines the day-of-the-week effect on the currency returns of ten Asian-Pacific countries and differs from previous studies in that it tests directly the effect on higher moments of currency returns. Using ten-year daily data, the results first show that currency returns are non-normally distributed, particularly with very large kurtosis. The hypothesis of equal higher moments (e.g., skewness or kurtosis or both) cannot be rejected by any pair of weekdays only for the Australian dollar. For the remaining nine currencies, the same hypothesis is rejected by at least one pair of weekdays. Six currencies reject the hypothesis in all pairs of weekdays, supporting the existence of the day-of-the-week effect on higher moments. Further analysis shows that Rogalski's effect exists on the higher moments of three currencies because the day-of-the-week effect exists only in non-January months. Sub-period analysis indicates that the weekly patterns on higher moments are quite consistent across two sub-periods for all currencies except the Taiwanese dollar.

Volatility and price change spillover effects across the developed and emerging markets

This paper tests the conventional wisdom that short-term volatility and price changes spill over from developed to emerging markets, but not vice versa. We also investigate how degree of market openness affects return and volatility spillovers. Three developed markets, New York, Tokyo, and London, and two emerging markets, Taiwan and Hong Kong, are examined. Two most interesting findings are: first, the Tokyo market has less influence than the New York market over the Taiwanese and Hong Kong markets; and second, the Taiwanese market is more sensitive than the Hong Kong market to the price and volatility behavior of the advanced markets even though Taiwan is not as open as Hong Kong and the Taiwanese dollar is not linked to the U.S. dollar while the Hong Kong dollar is.