THE IMPACT OF MONEY SUPPLY AND GOVERNMENT SPENDING ON ECONOMIC DEVELOPMENT AND ENERGY: THE CASE OF TAIWAN

摘要

The results of the AVECMs indicate that there is bidirectional causation between energy consumption and real GDP. Thus, our findings support the earlier finding in D. Hwang and B. Gum whose results were from bivariate causal models.Also shown is the importance of monetary and fiscal policy, energy prices, and exchange rates in explaining future movements in real GDP. Likewise, money supply, government spending, and energy prices contain information about future fluctuations in energy consumption. Why did the two oil price shocks not have much effect on energy consumption and real GDP, as indicated by the statistical insignificance of the dumoil variable? One of the explanations can be found in the Taiwanese government's policy of keeping petroleum prices at an artificially low level, especially between 1973 and 1979. For instance, between 1973 and 1974, the cost of crude oil increased 215 percent while the price index of petroleum products increased only 76.5 percent. Moreover, between 1974 and 1979, the annual increase in energy prices was 5.6 percent, while the price of imported oil, on average, went up 11.5 percent annually.