DOI: 10.5176/2010-4804_2.1.173
Authors: Kornchanok Lueangwilai
Abstract:
This paper examines the policy rule that can properly explain the policy rate particularly considering exchange rate fluctuations under an inflation targeting (IT) regime in Thailand by applying the Bayesian Maximum Likelihood estimation to a small open economy model proposed by Lubik and Schorfheide (2007). It considers various types of the Taylor rule: contemporaneous, backward-looking, and forward-looking. The main finding is that the contemporaneous rule responding to the nominal exchange rate properly characterizes the policy rate set by the Bank of Thailand. The BOT focuses more on the contemporaneous economic conditions than on the lag or the forward economic conditions. During the sample period, the BOT was more concerned about the world economy than the domestic economy.
Keywords: Macroeconomics, Exchange rates
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