Paper Status Tracking

Journals by Title

Journals by Subject

Contact us

	[email protected]
	3275638434

	Paper Publishing WeChat

Useful Links

Creative Commons Attribution-NonCommercial 4.0 International License

Article

Open Access

Structural Vector Autoregressive Analysis of Monetary Policy in Thailand

Author(s)

Popkarn Arwatchanakarn

Full-Text PDF Download XML 1625 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

References

Afandi, A. 2005. “Monetary Policy Transmission Mechanism and Structural Breaks in Indonesia.” Doctoral of Philosophy, University of Wollongong.

Amisano, G. and C. Giannini. 1997. Topics in Structural VAR Econometrics. Springer Berlin Heidelberg.

Atchariyachanvanich, W. 2004. “VAR Analysis of Monetary Policy Tranmission Mechanisms: Empirical Study on Five Asian Countries After the Asian Crisis.” Forum of International Development Studies 25:39-59.

Bernanke, B. 1986. “Alternative Explanations of the Money-Income Correlation.” Carnegie-Rochester Conference Series on Public Policy 25(1):49-59.

Bernanke, B. and A. Blinder. 1988. “Credit, Money, and Aggregate Demand.” The American Economic Review 78(2):435-439.

——. 1992. “The Federal Funds Rate and the Channels of Monetary Transmission.” The American Economic Review 82(4):901-921.

Bernanke, B. and M. Gertler. 1995. “Inside the Black Box: The Credit Channel of Monetary Policy Transmission.” Journal of Economic Perspectives 9(4):27-48.

Charoenseang, J. and P. Manakit. 2007a. “Financial Crisis and Restructuring in Thailand.” Pp. 83-106 in Economic Dynamism of Asia in the New Millenium: From the Asian Crisis to a New Stage of Growth, edited by Y. Shimizu. Hackensack, N.J. and Singapore: World Scientific.

——. 2007b. “Thai Monetary Policy Transmission in an Inflation Targeting Era.” Journal of Asian Economics 18(1):144-157.

Cushman, D. O. and T. Zha. 1997. “Identifying Monetary Policy in a Small Open Economy Under Flexible Exchange Rates.” Journal of Monetary Economics 39(3):433-448.

Disyatat, P. and P. Vongsinsirikul. 2003. “Monetary Policy and the Transmission Mechanism in Thailand.” Journal of Asian Economics 14(3):389-418.

Dungey, M. and A. Pagan. 2000. “A Structural VAR Model of the Australian Economy.” The Economic Record 76(235):321-342.

——. 2009. “Extending a SVAR Model of the Australian Economy.” The Economic Record 85(268):1-20.

Fung, B. S. C. 2002. A VAR Analysis of the Effects of Monetary Policy in East Asia. Bank for International Settlements. Retrieved (http://www.bis.org/publ/work119.pdf).

Grenville, S. and T. Ito. 2010. An Independent Evaluation of the Bank of Thailand’s Monetary Policy Under the Inflation Targeting Framework, 2000-2010. Bank of Thailand. Retrieved (https://www.bot.or.th/Thai/MonetaryPolicy/.../ GrenvilleItoV10(Oct22).pdf).

Hesse, H. 2007. “Monetary Policy, Structural Break and the Monetary Transmission Mechanism in Thailand.” Journal of Asian Economics 18(4):649-669.

Hossain, A. 2009. Central Banking and Monetary Policy in the Asia-Pacific. Cheltenham and London: Edward Elgar.

Kim, S. and N. Roubini. 2000. “Exchange Rate Anomalies in the Industrial Countries: A Solution With a Structural VAR Approach.” Journal of Monetary Economics 45(3):561-586.

Kubo, A. 2008. “Macroeconomic Impact of Monetary Policy Shocks: Evidence From Recent Experience in Thailand.” Journal of Asian Economics 19(1):83-91.

Lane, T., A. Ghosh, J. Hamann, S. Phillips, M. Schultze-Ghattas, and T. Tsikata. 2000. IMF-Supported Programs in Indonesia, Korea, and Thailand: A Preliminary Assessment. Retrieved (https://www.imf.org/ external/pubs/ft/op/op178/OP178.pdf).

Mishkin, F. S. 1995. “Symposium on the Monetary Transmission Mechanism.” Journal of Economic Perspectives 9(4):3-10.

Nakornthab, D. 2009. “Thailand’s Monetary Policy Since the 1997 Crisis.” Kobe University Economic Review 55:75-88.

Patrawimolpon, P., T. Rattanalankar, C. Charumilind, and P. Ngamchant. 2001. A Structural Vector Autoregressive Model of Thailand: A Test for Structural Shifts. Retrieved (http://econ.tu.ac.th/archan/RANGSUN/EC%20460/EC%20460%20Readings/Thai%20Economy/Structure%20of%20Thai%20Economy/Structural%20Vector%20Autoregressive%20Model%20of%20Thai.pdf).

Prasertnukul, W., D. Kim, and M. Kakinaka. 2010. “Exchange Rates, Price Levels, and Inflation Targeting: Evidence From Asian Countries.” Japan and the World Economy 22(3):173-182.

Raghavan, M., P. Silvapulle, and G. Athanasopoulos. 2012. “Structural VAR Models for Malaysian Monetary Policy Analysis During the Pre- and Post-1997 Asian Crisis Periods.” Applied Economics 44(29):3841-3856.

Sek, S. K. 2009. “Interactions Between Monetary Policy and Exchange Rate in Inflation Targeting Emerging Countries: The Case of Three East Asian Countries.” International Journal of Economics and Finance 1(2):27-44.

Sims, C. A. 1986. “Are Forecasting Models Usable for Policy Analysis?” Quarterly Review, Federal Reserve Bank of Minneapolis 2-16. Retrieved (https://www.minneapolisfed. org/research/qr/qr1011.pdf).

Taylor, J. B. 1995. “The Monetary Transmission Mechanism: An Empirical Framework.” Journal of Economic Perspectives 9(4):11-26.

Vimolsiri, P. and A. Hirunraengchok. 2004. “Structural Vector Autoregressions: The Case of Thailand.” Presented at the International Symposium on Forecasting, July 4-7, 2004, Sydney.