Shock Therapy! What Role for Thai Monetary Policy?

 
Author/Editor: Alp, Harun ; Elekdag, Selim
 
Publication Date: November 08, 2012
 
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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: 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.
 
Series: Working Paper No. 12/269
Subject(s): External shocks | Thailand | Monetary policy | Inflation targeting | Flexible exchange rate policy | Monetary transmission mechanism | Economic models

 
English
Publication Date: November 08, 2012
ISBN/ISSN: 9781475542851/2227-8885 Format: Paper
Stock No: WPIEA2012269 Pages: 48
Price:
US$18.00 (Academic Rate:
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