The Role of Interest Rates in Business Cycle Fluctuations in Emerging Market Countries: The Case of Thailand

Author/Editor:

Ivan Tchakarov ; Selim A Elekdag

Publication Date:

May 1, 2006

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Emerging market countries have enjoyed an exceptionally favorable economic environment throughout 2004, 2005, and early 2006. In particular, accommodative U.S. monetary policy in recent years has helped create an environment of low interest rates in international capital markets. However, if world interest rates were to take a sudden upward course, this would lead to less hospitable financing conditions for emerging market countries. The purpose of this paper is to measure the effects of world interest rate shocks on real activity in Thailand. The analysis incorporates balance sheet related credit market frictions into the IMF’s Global Economy Model (GEM) and finds that Thailand would best minimize the adverse effects of rising world interest rates if it were to follow a flexible exchange rate regime.

Series:

Working Paper No. 2006/110

Subject:

Emerging and frontier financial markets Exchange rate arrangements Exchange rate flexibility Financial statements Real interest rates

English

Publication Date:

May 1, 2006

ISBN/ISSN:

9781451863703/1018-5941

Stock No:

WPIEA2006110

Pages:

24

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