Abstract
The thesis combines the Markov-Switching Model with Dynamic Stochastic General Equilibrium Model and derives a Markov-Switching Dynamic Stochastic General Equilibrium Model for Taiwan. The main purpose of my thesis is to investigate whether the monetary policy of Taiwan central bank and the volatility of exogenous shock will vary over time or not in Taiwan. Based on the analysis of the data from Taiwan, it is found that the monetary policies can be roughly classified into two types in strategy. One is the moderate policy which is more related to inflation rate, and the other is the aggressive policy which has a less relation with inflation rate. Moreover, my thesis argues that there are two conditions of exogenous shocks: high volatility and low volatility.