Exploring Solutions for the Negative Impact of US Quantitative Easing on Taiwan

Because Taiwan is export-oriented and highly connected with the US in terms of trade, Quantitative Easing (QE) of the Federal Reserve System (FED) had significant negative impacts on Taiwan. We examine several possible solutions for these negative impacts via the Delphi technique and the Analytic Hierarchy Process, synthesizing judgements from experts. The empirical results point out that a “negative influence on international trade affairs” is the predominant main criteria, and “improvement of international trade and investment regulations”, “easing the impact of increases in the prices of raw materials obtained internationally”, and “raising the competitiveness of the nation’s export industry” are important sub-criteria. Especially, “improvement of international trade and investment regulations” corresponds with the global imbalance phenomenon. To strengthen the trade environment in Taiwan, experts suggest that an overall improvement in balance of payment is necessary that encompasses investment activities and trade regulations. We look forward our results offering useful suggestions.


Introduction
Since the subprime mortgage crisis in the US in 2008, there has been an economic recession there. Financial institution lending has contracted, thus diminishing consumption and employment in the US and lowering internal demand in the US. This crisis also threatened its corresponding trade partners, emerging countries in Asia, via lessening Asia's exports and further diminishing its GDP.
This negative influence became a global contagion that further induced a global economic recession. Traditional monetary policies could not end the US eco-

The Negative Influence of US QE on Trade in Taiwan
Based on the literature, we determined various negative influences of the US QE policies on Taiwan, separately for capital markets, the materials market, international trade affairs, and export industries. Four main categories of these negative influences were developed: "asset price bubbles", "inflation", "negative influence on international trade affairs", and "adverse impact on export industries" [1] [2] [3] [4].

1) Asset price bubbles
US QE policies induced lower short-term market interest rates. Speculators in the US invest overseas, creating a hot money outflow. US QE policies speeded up the international hot money flooding everywhere and raised the risks inherent in the global stock and housing markets. However, when the hot money left, it instantly raised asset prices, creating asset price bubbles.
In response to the US QE policies, the increasing money supply in Taiwan boosted both stock prices and housing prices. Due to the possibility of asset price bubbles, the government in Taiwan took action. According to the literature, we propose three ways to ease these inverse impacts [1]  The Central Bank should engage in moral suasion, reminding banks not to deliberately set mortgage rates at lower levels. Also, related tax measures, such as levying securities taxes and housing taxes, also depress speculation.
We treat "control hot money originating from US QE policies flooding into Taiwan", "increasing interest rate instantly as needed", and "raising the transaction cost of assets" as sub-criteria for eliminating asset price bubbles originating from QE policies.

2) Inflation
Hot money flow into material markets, raises raw material prices and spurs inflation due to the speculation phenomenon. Central banks thus start to apply monetary contraction to cool down over-heated economies [1] [2] [3] [4].
In addition, governments should reduce import tariffs on necessities, which could both increase supplies and eliminate the inflation originating from shortages of such goods. As an alternative, governments could offer subsidies to firms in exchange for their more stable commodity prices. Hence, decreasing tariffs and offering subsidies as necessary by the government are important sub-criteria for eliminating the negative impact of QE policies on inflation.
In conclusion, we treat "raising up interest rate to reduce monetary supply", "depressing the inflation of raw materials", and "decreasing tariffs and offering subsidies moderated by the government" as sub-criteria for eliminating the negative impact of QE policies on inflation.

3) Negative influence on international trade affairs
Because international raw materials are valued in US dollars, with a depreciated US dollar, cheaper raw materials will cause countries to buy more, thus raising the demand that will immediately raise prices. When the US dollar is depreciated, the currencies of Asian countries are relatively appreciated. Although the price of raw materials is increased, we can appreciate our nation's currency relative to the US dollar, to ease the impact of increases in the prices of raw materials obtained internationally.
In September 2016, the G20 created tasks for the global economy, including a controlled, sequentially structured economic revolution, green investment expansion, anti-trade protection, and infrastructure improvement. Especially, maintaining control of the structured revolution is very important because imbalances will threaten the worldwide economy, and trade protection efforts will again threaten economic stability [5].
Currently, various types of imbalances occur, including twin fiscal and trade deficits in developed countries and the loosening of international trade and investment regulations, which further lead to global imbalances. Global imbalance has been shown to be a huge problem worldwide, representing current account deficits in developed countries (the US and Europe) relative to current account surpluses in developing countries (Asia). Thus, "improving international trade and investment regulations" should be stressed.
In conclusion, we treat "appreciating our nation's currency relative to the US Hence, the central banks in Asia interfered with the exchange rate to protect their export industries, and their adaptations worked well. Therefore, "stable local currency appreciation relative to currencies in other countries" should be stressed.
In conclusion, we focus on "raising a nation's export industry competitiveness", "stabilizing local currency appreciation relative to currencies in other countries", and "specialization of the unique brand of industries in Taiwan" as three sub-criteria in eliminating adverse impacts on export industries originating from US QE policies.

Empirical Methods
Our procedure follows two stages. In the first stage, the Delphi technique is applied to choose the initial criteria combined with the judgements of experts to determine methods for eliminating the negative impact of US QE policies on Taiwan. In the second stage, we use analyses of the first stage as a foundation of the AHP to extract the weights of the criteria.

First Stage: The Delphi Technique
The Delphi technique is a communication method, an interactive forecasting method relying on experts' answers to questionnaires. The facilitator designs a questionnaire that is sent to a group of experts, and the results are summarized after the questionnaires are returned. Then, the facilitator develops a new questionnaire for the respondent group based on the results, and the experts then fill out questionnaires in two or more rounds. A communication process is structures, and the process is effective in allowing experts to revise their earlier answers based on the replies of others in this group [6] [7].
The facilitator provides an anonymized summary of the experts' forecasts Journal of Mathematical Finance from the previous round at each round. During this process, the number of answers will decrease, and the experts will converge towards the "correct" answer.
After a predefined stop criterion, the process is stopped, and the mean scores of the final rounds determine the results.

Second Stage: The Analytic Hierarchy Process (AHP)
The If decision making involves many intangibles, then we measure using pairwise comparisons and judgements from experts to derive priority scales. The scales measure intangibles in relative terms through a scale of absolute judgements by comparing one criteria to another, with respect to a given attribute.
Because the judgements may be inconsistent, it is important to measure inconsistency and improve the judgements. The relative importance between two criteria is numerically scaled from 1 to 9, and those located in a range from 5 to 9 will be the proper results [12]. The relative scores for the criteria in this study are shown in Table 1.
The procedure of evaluating methods for eliminating the negative impact of US QE policies on Taiwan is as follows: Step 1: Checking consistency When we perform pairwise comparisons, inconsistencies may easily occur.
Therefore, it is necessary to check the consistency via a consistency index (C.I.).
[13] proposed checking consistency using a consistency index (C.I.) and a consistency ratio (C.R.), where the consistency index is defined as follows: Random index (RI), the consistency index of a randomly generated reciprocal matrix, which ranges from 1 to 9 with reciprocals forced for each matrix size. Absolute Importance (8,9,9) Source: Miller (1965). Step 2: Hierarchy structuring The hierarchy is structured with the decision goal at the top, followed by the intermediate levels to the lowest level, with the objectives being derived from a broad perspective. To get a perfectly consistent comparison judgment and perform pairwise comparison more easily, there should be fewer than 7 elements in each level.
Step 3: Design an answer questionnaire for experts We designed the questionnaires as a pairwise comparison by synthesizing the responses from the experts to form a pairwise comparison matrix.
Step 4: Form a square pair-wise comparison matrix,  Step 7: Eliminate intangibles To optimize each criterion, we must eliminate intangibles. The advantages of adopting ij DF are objectivity, where the experts' preferences can be ignored. Step 8: Normalization To compare the importance of various criteria, we normalize the weights.

Analysis of Expert Results
First, the questionnaires are constructed using the Delphi technique, and then we analyze the judgements from experts. Evaluation standards are averages that should be larger than 3, and coefficients of variation should be less than 0.5. In the first round, we issued 96 questionnaires, returning 74 effective questionnaires, and the response rate was 77.08%. We issued questionnaires to 22 professors, 52 experts in financial institutions (research fellow in securities compa-

Results of the Questionnaires Using the Delphi Technique
We synthesized the responses for the pairwise comparison and used the geometrical mean average method to weight the factors, corresponding to the major criteria and the sub-criteria. Through ranking, we chose the top 12 factors. The results of the questionnaires are shown in Table 3. If the result is O, this indicates that the experts had consistent opinions. Otherwise, X indicates they had different opinions. The 12 items selected using the Delphi technique are shown in Table 3. Their coefficient variations are all smaller 0.5, representing the consistency of the experts' opinions. For the next step, we designed a questionnaire using the AHP method, structured with four criteria and 12 sub-criteria.

Results of the Questionnaire Using the AHP Method
Since the expert judgements achieved consistency, we created a pairwise comparison matrix, evaluating the weights of each criteria. The results are shown in Table 4 and Table 5. Among the main criteria for eliminating the negative impact of the US QE policies, "negative influence on international trade affairs (0.322)" was found to be the most important main criteria; then, sequentially in order of importance were "inflation (0.255)", "adverse impact on export industries (0.212)" and "asset price bubbles (0.211)".
As for the sub-criteria, the top 5 were "improvement in regulations on International trade and investment (0.166)", "Easing the impact from increases in the prices of raw materials obtained internationally (0.125)", "increasing the competitiveness of the nation's export industry (0.113)", "controlling the structured revolution to ease trade friction (0.106)", and "controlling the flood of hot money originating from the US QE into Taiwan (0.101)".  The results of the AHP are shown in Table 6, where we examine the consistency using CI and CR by showing the (C.R.) and (C.R.H.) of the returned questionnaires to all be smaller than 0.1, indicating the overall consistency of the expert judgements.
The experts concluded that the most important criteria is to resolve "the negative influence on international trade affairs", and three important sub-criteria were, respectively, "improvement of international trade and investment regulations", "easing the impact of increases in the price of raw materials obtained internationally", and "increasing the competitiveness of the nation's export industry".
As for "improvement of international trade and investment regulations", the experts emphasized the regulation of investment activities in financial accounts and trade affairs in current accounts.
Nowadays, currency deficits in developed countries (the US and Europe), and currency surpluses in emerging markets (Asia) lead to global imbalance [14] [15] [16] [17]. Global imbalances may induce economic erosion in a complex way. Because Taiwan is an export-oriented area, the experts suggested Taiwan should face this issue.
As for "easing the impact of increases in the prices of raw materials obtained internationally", the US enforced the QE policies and the hot money pushed up the prices of raw materials. To reduce the prices, the central banks adopted a contracting monetary policy.  As for "raising the competitiveness of the nation's export industry", the competition among Asian currencies originated from the US QE policies. Because Taiwan relies heavily on exports, the experts suggested that businesses should adapt to the various global environments.

Conclusions
Applying the AHP to measure priority scales using pairwise comparisons and relying on the judgements of experts, we assess methods for eliminating negative impact originating US QE policies on Taiwan.
The most important main criterion was the "negative influence on international trade affairs". Among the sub-criteria, the experts focused on "improvement of international trade and investment regulations", "easing the impact of increases in the prices of raw materials obtained internationally", and "raising the competitiveness of the nation's export industry".
It should be noted that our results correspond to the global imbalance phenomenon [14] [15] [16] [17]. Because Taiwan is an export-oriented area, the experts focused on international trade and investment regulations, thus attempting to consider the possible economic damage caused from global imbalance. Some extensions will be enforced in the future. The granger-causality of those negative impacts will be stressed, and we focus on the interrelationships between criteria.
We expect our conclusions to offer useful suggestions.