Monetary Regimes and Share Price Volatility in East Asia

Abstract

This paper applies counter-factual simulation experiments based on a calibrated DSGE model of a small open-economy. We compare the alternative monetary regimes of East Asia: the monetary targeting framework of the Central Bank of the Republic of China, the fixed-rate system practiced in Hong Kong, the Taylor rule used in Korea, and the exchange-rate management policy used in Singapore. The welfare differences are minimal, but the monetary rule of Taiwan delivers significantly lower share market volatility for a variety of shocks.