DOI: 10.5176/2251-2012_QQE38

Authors: Kornchanok Lueangwilai

Abstract:

This paper analyzes monetary policy implementation under an Inflation Targeting (IT) regime in Thailand. The paper applies the Bayesian Maximum Likelihood estimation to a small open economy model, proposed by Lubik and Schorfheide (2007). The study examines whether or not the Bank of Thailand (BOT) considers exchange rate movement, which is uncertain, in setting the policy rate. The paper considers various types of the Taylor rule: contemporaneous, backward-looking and forward-looking. The main finding is that the BOT responds to the exchange rate movement. The contemporaneous rule responding to the nominal exchange rate movement well characterizes the policy rate set by the BOT. The BOT focuses more on the contemporaneous economic condition than the lag of interest rate. Specifically, the rule illustrates that the BOT follows the Taylor principle, with on average the inflation-response coefficient is 1.515. Also, the BOT puts more weight on exchange rate stabilization relative to the output stabilization. Thus, the BOT has implemented flexible IT policy with exchange rate concern.

Keywords: Monetary policy rule, Taylor rule, Exchange rate uncertainty

LinkOut:    ScienceDirect

Price: $4.99

Loading Updating cart...
LoadingUpdating...