Because of the 2006 Iraq War and the increased demand for oil from developing countries, uncertainty in Asia fueled by such tensions again and oil prices began to rise again in early 2004. As oil prices increase, we refocus attention on the issue of energy price changes and their impact on economic activities. Even though there are related studies on the use of an asymmetrical relation to examine the impact of an oil price change on the economy, they do not consider the speed of oil price adjustment before estimation and neglect the impact of oil price shocks. In addition, there is a shortage of research regarding the impact of coal price and natural gas price on macroeconomic activities in Taiwan.
To overcome the weakness of prior studies, we apply the MVTEC model proposed by Tsay (1998). The threshold value determined by the dataset delineates the sample instead of using the arbitrary zero as a cutoff point. We try to find the speed of response (delay periods d) and the degree of critical level (threshold value c) as a consequence of the impact of a positive energy price change and its shock. The next step is to find the factors affecting the speed and the critical level of the impact.
Compared to the results of the non-linear model, we also use a linear model to estimate the effects of energy price shocks (including crude oil, natural gas, and coal) on Taiwan’s macroeconomic activities. Furthermore, we employ the VDC and IRF to capture the effects of energy price shocks on the macroeconomy.
The main purpose of this paper explores the effects of international energy price shocks and macroeconomic activity in Taiwan. The preliminary findings are: (1) There is a threshold non-linearity relationship between energy price variables and macroeconomic variables. (2) The optimal threshold levels are 2.48% in terms of oil price change, 0.87% in terms of natural gas price change, and 0.22% in terms of coal
price change. Due to Taiwan’s higher economic development, the threshold of critical level is greater as evidence by the positive impact of an oil price change and its shock.
The optimal threshold value seems to vary according to how an economy depends on imported energy and the attitude towards accepting energy-saving technology. (2) If a country has a higher energy import ratio and acquires a higher ratio of energy use in the industrial sector, then it will have a shorter delay in terms of its economic response from the positive impact of an energy price change. As our results show, the delays of the threshold variable are only one month and their responses are very quick. (3) Compared to the other energy prices (i.e., coal price and natural gas price), an oil price change has the largest explanatory effect on Taiwan’s industrial production. Moreover, it better explains industrial production than the real interest rate when an oil price change exceeds the threshold value (regime two). (4) A coal price change significantly explains stock prices in the two-regime model compared to the one-regime model. A natural gas price change has higher explanatory power on stock prices than the interest rate when a natural gas price change is below the threshold value (regime one). In a similar vein, a natural gas price change has stronger explanatory power on the unemployment rate. (5) Energy price shocks have a negative impact on Taiwan’s macroeconomic activities especially in industrial production and stock prices in regime two. Both oil price shocks and natural gas shocks have a delayed negative impact on industrial production with one lag when energy price changes exceed the threshold level.
By the same token, energy price shocks have delayed negative impacts on the stock market. (6) To Taiwan’s labor market, international energy price shocks have a positive effect on the unemployment rate in the short term. It means that an increase in energy prices will increase the cost of production which in turn results in higher levels of unemployment. (7) In summary, the findings speak to the fact that the two-regime model seems to offer more detailed and noticeable responses.
Based on the aforementioned findings, we observe that energy prices have significant impacts on Taiwan’s macroeconomic activity. In order to reduce the impact of energy price shocks and promote sustainable development in Taiwan, we further address the trend of Taiwan’s energy development and some energy strategies for domestic policy makers. The first one is to actively develop the domestic renewable (or green) industry. A niche for energy development in Taiwan is to explore renewable (or green) energy especially solar power energy. For example, Taiwan’s government actively subsidizes the installation expense of photovoltaic (PV) systems and promotes the exhibition of PV products (e.g., solar cars, solar water heating systems, solar electric power systems, and so on) in recent years. With strong policy support, the installation will reach a growth rate of 30% in 2009. In addition, Taiwan ranks as the fourth largest solar cell producing country in the world and is in the stage of value inflow.
This means that the domestic photovoltaic (PV) industry has a higher market to sales ratio. This evidence suggests that industrial decisions must be made to pursue a sustainable PV industry. Most producers can increase more labor and capital, in order to further reduce the domestic unemployment rate. Authorities should encourage other domestic industries to reinvest in the upstream and downstream of the PV industry.
The second one is to promote greater scale efficiency and to obtain competitive advantages for the domestic energy industry. An integrated supply chain can help manufacturers grasp market demand trends and boost market share especially for the PV industry. The highly vertically integrated supply chain helps domestic firms create a complete interaction between upstream and downstream and allows for more innovative opportunities. The sources of material control and customer retention are two key factors to keep energy industrial competitive advantages. Moreover, integrated innovation is rather noteworthy, suggesting that the condition for success is for both Taiwan and China to cooperate across the industry chain. Policy-makers should
change the integration direction ‘from sand to system’ to ‘from system to sand’.
The final one is to achieve energy technological breakthroughs. Taiwan’s past innovative pattern is ‘learning by doing’ which borrows much production knowledge from its semiconductor production. For the domestic PV industry, it has been proven effective in gaining market power from material innovation, technical innovation, application innovation, and financial innovation. Taiwan’s government has to support further concrete cooperation and technological interchange from domestic and foreign R&D centers.
Even though we have found possible factors of explaining Taiwan’s macroeconomic variable fluctuations and the speed of adjustment from the impact of energy price shocks, there are still some limitations to this thesis. The potential limitations of this research are as follows:
(1) There is a host of possible exogenous factors that may affect the macroeconomic variables and the delay of the effect such as degree of openness of the economy, and fiscal and exchange rate policy (e.g., Bohi, 1991). These omitted variables may be included in future analyses to test the robustness of the result.
(2) Oil price shocks display a slight effect on Taiwan’s labor market. In fact, international energy prices may affect open economies both directly and indirectly.
Future research can identify the direct and indirect channels of oil price shocks on the labor market.
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簡 歷
姓名：葉芳瑜 (Fang-Yu Yeh)
學歷：
Ph.D., Institute of Business and Management, National Chiao Tung University, 4/2010.
M.B.A, Institute of Business and Management, National Chiao Tung University, 06/2005.
B.A., Department of Bachelor of Business Administration, Tamkang University, 06/2003.
研究著作：
1. Hu, Jin-Li, Tsung-Fu Han, Fang-Yu Yeh and Chi-Liang Lu (forthcoming).
Efficiency of Science and Technology Industrial Parks in China. Journal of Management Research. (paper accepted)
2. Hu, Jin-Li and Fang-Yu Yeh (forthcoming). Value Migration and Innovative Capacity of Taiwan's Photovoltaic Industry. Energy Sources, Part B: Economics, Planning and Policy. (SCI, paper accepted)
3. Hu, Jin-Li, Fang-Yu Yeh and I-Ting Chang (2009). Industrial Park Efficiency in Taiwan. Journal of Information & Optimization Sciences 30(1), 63-86. (EI)
4. Hu, Jin-Li, Shih-Chuan Wang and Fang-Yu Yeh (2006). Total-Factor Water Efficiency of Regions in China. Resources Policy 31(4), 217-230. (SSCI)
5. Hu, Jin-Li, Fang-Yu Yeh, Yao-Chun Lee, Chih-Lin Chen (2005). Efficiency of High-tech Zones in Mainland China (in Chinese). Journal of Technology Management 10(1), 135-168.