IMF Working Papers

Shock Therapy! What Role for Thai Monetary Policy?

By Harun Alp, Selim A Elekdag

November 8, 2012

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Harun Alp, and Selim A Elekdag. Shock Therapy! What Role for Thai Monetary Policy?, (USA: International Monetary Fund, 2012) accessed September 26, 2024
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.

Subject: Exchange rate arrangements, Exchange rate flexibility, Exchange rates, Financial crises, Foreign exchange, Global financial crisis of 2008-2009, Inflation targeting, Monetary policy

Keywords: Bayesian estimation, Countercyclical monetary policy, DSGE model, Emerging markets, Exchange rate, Exchange rate arrangements, Exchange rate flexibility, Exchange rate flexibility, Exchange rate regime, Exchange rates, Financial accelerator, Financial crisis, Global, Global financial crisis, Global financial crisis of 2008-2009, Inflation targeting, Inflation targeting framework, Monetary policy, Monetary policy framework, Monetary policy shock, Nominal exchange rate, Open economy, Thai floods, Thailand, WP

Publication Details

  • Pages:

    48

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/269

  • Stock No:

    WPIEA2012269

  • ISBN:

    9781475542851

  • ISSN:

    1018-5941

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