Reinvestigating the Effect of Money on Output for Taiwan with Additional Robustness

Abstract

This paper investigates the effect of money on output in Taiwan with more robustness concerns. First, we employ different lag-length chosen criteria, such as AIC, BIC, FPE, SBC, SIC, and HJC for the lag length chosen for Granger causality. Second, we use the symmetric and asymmetric lag length models for further investigation. Third, we employ the simulated data and real data for comparison. Fourth, we further compare the results derived from short-term data with those derived from long-term period data. After surveying the relevant literature, we find that these concerns seem rarely concerned in the relevant studies. In addition, our empirical results reveal that the money indeed affects output even after taking the concerns mentioned above for robustness, implying that policymakers should adopt monetary policies with care in Taiwan.

Effect of Financial Development on the Transmission of Monetary Policy

“…Due to this limitation, bank loans become the major source of economic growth for the country (Smith [21] and Jayaratne and Strahan [20]). Money has been shown in the literature to have a causal effect on output (Wu and Ni [29]). Deposits are an important part of liquidity creation, and the availability of liquidity is very important for the economy to be stable and not be hit by a financial crisis (Kashyap Rajan and Stein [8]).…”