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Shock Therapy! What Role for Thai Monetary Policy?
Author: Mr. Harun Alp and Mr. Selim A Elekdaghttps://orcid.org/0000-0002-1234-4463
Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 269
Language:
English
Publication Date:
08 Nov 2012
DOI:
https://doi.org/10.5089/9781475542851.001
ISBN:
9781475542851
ISSN:
1018-5941
Pages:
48
Keywords:
WP; exchange rate; financial crisis; open economy; Thailand; financial accelerator; Bayesian estimation; DSGE model; global financial crisis; Thai floods; monetary policy; inflation targeting; emerging markets; inflation targeting framework; exchange rate flexibility; monetary policy shock; countercyclical monetary policy; monetary policy framework; exchange rate regime; nominal exchange rate; Exchange rate flexibility; Exchange rate arrangements; Exchange rates; Global financial crisis of 2008-2009; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Thailand had to endure three major shocks during 2008–2011: the global financial crisis, the Japanese earthquake, and the Thai floods of 2011. Over this period, consistent with its inflation targeting framework, the Bank of Thailand (BOT) let the exchange rate depreciate and cut interest rates (to, for example, a historically low level of 1¼ percent by mid-2009). This paper seeks to uncover the role of monetary policy in softening the impact of these shocks. Specifically, it seeks to address the following question: if an inflation targeting framework underpinned by a flexible exchange rate regime had not been in place, how would the economic contractions associated with these shocks have differed? Counterfactual simulations based on an estimated structural model indicate that countercyclical monetary policy and exchange rate flexibility added up to a total of 4 percentage points to real GDP growth during periods when Thailand had to weather these three major shocks.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund