ESTIMATED DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM MODEL OF THE TAIWANESE ECONOMY

. I develop a small open economy dynamic stochastic general equilibrium model to study monetary policy and the business cycle in Taiwan. Several versions of the model with different representations of Taiwanese monetary policy are estimated using Bayesian techniques. The major findings are that: (i) monetary policy in Taiwan is best described by a money supply growth rate rule; (ii) the Taiwanese economy is more flexible than the Euro area economy; and (iii) export price mark‐up and investment‐specific technology shocks are the main driving forces of output growth fluctuations in Taiwan.