The Role of Interest Rates in Business Cycle Fluctuations in Emerging Market Countries: The Case of Thailand
May 1, 2006
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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.
Subject: Emerging and frontier financial markets, Exchange rate arrangements, Exchange rate flexibility, Financial statements, Real interest rates
Keywords: nominal interest rate, price, real interest rate, Thailand, WP, yield
Pages:
24
Volume:
2006
DOI:
Issue:
110
Series:
Working Paper No. 2006/110
Stock No:
WPIEA2006110
ISBN:
9781451863703
ISSN:
1018-5941
