Stabilizing Taiwan’s economy: The role of energy pricing policy versus monetary policy

Yi-Hua Wu and Liang-Jyi Fang

Energy, 2025, vol. 323, issue C

Abstract: This study investigates the relative importance of Taiwan’s energy pricing policy and its monetary policy for stabilizing output growth and inflation. Using a small open economy vector autoregressive (VAR) model with data from 1981Q1 to 2008Q4 (to avoid the zero-interest-rate period), variance decompositions reveal that the electricity price shock and the fuel price shock have a greater impact on Taiwan’s output growth and inflation than the monetary shock. In addition, counterfactual simulations show that the energy pricing policy surpasses the monetary policy in ensuring economic stability. Despite criticism for encouraging excessive energy use, the low energy price policy buffers the domestic economy from volatility in global energy markets. Our findings highlight the crucial role of Taiwan’s Ministry of Economic Affairs in strengthening economic stability through energy price regulation.

Keywords: Energy pricing policy; Monetary policy; Economic stability; VAR; Taiwan (search for similar items in EconPapers)
JEL-codes: E31 E52 E64 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:323:y:2025:i:c:s036054422501196x

DOI: 10.1016/j.energy.2025.135554

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