{ "title": "Shock Therapy! What Role for Thai Monetary Policy?", "publication": "IMF Working Papers, November 8, 2012", "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089", "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089", "overlayPath": "/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089/index.md", "summary": "Thailand had to endure three major shocks during 2008–2011: the global financial crisis, the Japanese earthquake, and the Thai floods of 2011.", "sections": [ { "heading": "Overview and research question", "content": "- Timeframe analyzed: 2008–2011.\n- Major shocks endured by Thailand during 2008–2011: the global financial crisis, the Japanese earthquake, and the Thai floods of 2011.\n- Central research 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?\n- Monetary policy stance observed: consistent with an 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)." }, { "heading": "Methodology", "content": "- Analytical approach: counterfactual simulations based on an estimated structural model.\n- Estimation and model features referenced in the work: Bayesian estimation, DSGE model, open economy considerations, financial accelerator mechanisms.\n- Counterfactual exercise: simulates paths of real GDP and other macroeconomic variables under alternative monetary policy / exchange rate arrangements to isolate the contribution of countercyclical monetary policy and exchange rate flexibility." }, { "heading": "Key findings and statistics", "content": "- Quantified contribution: 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 the three major shocks.\n- Specific policy action highlighted: interest rates were cut to a historically low level of 1¼ percent by mid-2009.\n- Page length: 48 pages.\n- Working Paper series: Working Paper No. 2012/269, Issue 269, Volume 2012.\n- DOI: https://doi.org/10.5089/9781475542851.001" }, { "heading": "Analysis and interpretation", "content": "- Role of inflation targeting with flexible exchange rate: The combination of inflation targeting and exchange rate flexibility is presented as having a cushioning effect during large external and domestic shocks via allowance for exchange rate depreciation and countercyclical interest rate reductions.\n- Mechanisms emphasized: exchange rate depreciation and interest rate cuts acted jointly to mitigate the severity of output contractions associated with the three shocks in 2008–2011.\n- Relevance: findings pertain to emerging market monetary policy design under large external shocks and domestic disasters." }, { "heading": "Implications for policy and practice", "content": "- Empirical support for preserving room for countercyclical monetary policy in emerging market economies facing large shocks.\n- Importance of exchange rate flexibility as part of an inflation targeting framework to absorb external and domestic shocks.\n- Policy-makers in similar settings may consider the welfare-enhancing role of allowing exchange rate depreciation and using interest rate cuts during episodes of large adverse shocks, as illustrated by the Thai experience in 2008–2011.\n\nSource: IMF Working Paper \"Shock Therapy! What Role for Thai Monetary Policy?\" by Harun Alp and Selim A Elekdag (Working Paper No. 2012/269).\n\n---\n\n Content in this bundle\n\n- wp12269 - Executive Summary\n - wp12269 - Executive Summary (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - wp12269 - Executive Summary (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089" } ], "bullets": [ "[Markdown version](/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089/index.md)", "[Structured JSON version](/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089/index.json)", "[Bundle manifest](/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089/bundle-manifest.json)", "Authors: Harun Alp, Selim A Elekdag", "Published: November 8, 2012", "Series: IMF Working Papers", "DOI: https://doi.org/10.5089/9781475542851.001", "Timeframe analyzed: 2008–2011.", "Major shocks endured by Thailand during 2008–2011: the global financial crisis, the Japanese earthquake, and the Thai floods of 2011.", "Central research 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?", "Monetary policy stance observed: consistent with an 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).", "Analytical approach: counterfactual simulations based on an estimated structural model.", "Estimation and model features referenced in the work: Bayesian estimation, DSGE model, open economy considerations, financial accelerator mechanisms.", "Counterfactual exercise: simulates paths of real GDP and other macroeconomic variables under alternative monetary policy / exchange rate arrangements to isolate the contribution of countercyclical monetary policy and exchange rate flexibility.", "Quantified contribution: 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 the three major shocks.", "Specific policy action highlighted: interest rates were cut to a historically low level of 1¼ percent by mid-2009.", "Page length: 48 pages.", "Working Paper series: Working Paper No. 2012/269, Issue 269, Volume 2012.", "DOI: https://doi.org/10.5089/9781475542851.001", "Role of inflation targeting with flexible exchange rate: The combination of inflation targeting and exchange rate flexibility is presented as having a cushioning effect during large external and domestic shocks via allowance for exchange rate depreciation and countercyclical interest rate reductions.", "Mechanisms emphasized: exchange rate depreciation and interest rate cuts acted jointly to mitigate the severity of output contractions associated with the three shocks in 2008–2011.", "Relevance: findings pertain to emerging market monetary policy design under large external shocks and domestic disasters.", "Empirical support for preserving room for countercyclical monetary policy in emerging market economies facing large shocks.", "Importance of exchange rate flexibility as part of an inflation targeting framework to absorb external and domestic shocks.", "Policy-makers in similar settings may consider the welfare-enhancing role of allowing exchange rate depreciation and using interest rate cuts during episodes of large adverse shocks, as illustrated by the Thai experience in 2008–2011.", "**_wp12269 - Executive Summary**" ], "related": [ { "title": "_wp12269 - Executive Summary", "role": "document", "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12269.pdf", "summary": { "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12269.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12269.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089/index.md", "json": "/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089/index.json", "bundleManifest": "/en/publications/wp/issues/2016/12/31/shock-therapy-what-role-for-thai-monetary-policy-40089/bundle-manifest.json" }, "generatedAtUtc": "2026-09-18T05:23:25.223Z" }