The purpose of the model is to implement the simulation analysis of domestic and foreign economic change on the trade and aggregate economy of Taiwan. The model focuses on the relationship between the trade variables and macroeconomic variables. The export and import functions have been estimated for nineteen countries or regions separately; four commodity imports, i.e., consumption goods, capital goods, crude oil and non-oil materials have also been estimated with the consideration of individual tariff rates; also private consumption is estimated by four categories, i.e., durable goods, semi-durable goods, nondurable goods, and services; and, private fixed investment is estimated by four categories, i.e., machinery, transportation, construction and dwellings.
The reason for the classification is to explore the interaction between trade and macroeconomic variables. In addition, the model, which considers the contribution of trade of economic growth from the supply side, is distinguished form other models which only consider the contribution of trade from the demand side.
The Mean Square Errors of Simulation within the sample are less than 10%. For outside the sample simulation, two-thirds of the simulation error are less than 5%, and less than one-tenth have an error greater than 10%. Therefore, the model has great explanatory power for the Taiwan economy.
