| dc.description.abstract | Taiwan and China are relatively close in culture, trade, and geographical relationship. In recent years, the status of RMB in the international market has gradually increased. Since 2013, the RMB has become the second largest foreign currency in the allocation of foreign currency assets. Our model based on Tsaur and Tang (2016) and Tsaur and Tsaur (2016), then we used Taiwan′s 2010-2016 data to set reasonable parameter values. The purpose of this paper is to study the independence of monetary policy through numerical simulation. This paper shows that the elasticity of currency substitution between NTD and USD determines the impact of expansionary monetary policy on domestic people′s currency holdings. When NTD and USD present net substitution, and domestic people′s USD holdings exceeds 28.35% of overall currency holdings, an expansionary monetary policy would result in net foreign currency inflows, which violates the independence of monetary policy. In addition, this paper extends the exploration of real exchange rate fluctuations. When the modified Marshall condition is established, the greater the amount of Taiwan’s imports from the United States, the greater the fluctuations of the real exchange rates. Specifically, the elasticity of currency substitution between NTD and USD has a greater impact on real exchange rates fluctuations than the ratio of USD holdings by domestic people. | en_US |