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Article

Open Access

Structural Vector Autoregressive Analysis of Monetary Policy in Thailand

Author(s)

Popkarn Arwatchanakarn

Full-Text PDF Download XML 1516 Views

DOI:10.17265/2159-5526/2017.03.002

Affiliation(s)

The University of Newcastle, Australia

ABSTRACT

This paper highlights the importance of monetary policy transmission mechanism in Thailand since the 1997 financial crisis and then undertakes an empirical investigation of Thailand monetary policy. This study makes effort to address both two aspects of monetary transmission mechanism, namely channels of monetary policy and the effect of monetary policy shocks on key macroeconomic variables. To address these issues, the paper specifies structural vector autoregressive (SVAR) models and estimates them using quarterly data from 1997q3 to 2014q4. The identification schemes used in this paper follow Kim and Roubini and Raghavan Silvapulle, and Athanasopoulos with some modifications. The overall result is that the identifying restrictions used in the SVAR seem to appropriately identify a monetary policy shock even though the exchange rate puzzle is found. The results show that interest rate and monetary aggregate have played the dominant channels of monetary transmission mechanism in Thailand, while an exchange rate channel is decreasingly significant. In addition, Thailand economy is somewhat exposed to the foreign sector especially for the world price of oil and the U.S. monetary policy. The results also reveal the linkage and influence of U.S. monetary policy on Thailand monetary policy. The empirical findings are then used to provide Bank of Thailand (BOT) with insight into identifying the important monetary policy transmission channels. It would help the BOT to implement an effective monetary policy for achieving price stability through the appropriate monetary channels.

KEYWORDS

Monetary policy, monetary transmission mechanism, SVAR model, Thailand

Cite this paper

Sociology Study, March 2017, Vol. 7, No. 3, 133-145

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