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Monetary policy, structural break, and the monetary transmission mechanism in Thailand

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  • Hesse, Heiko

Abstract

The paper studies monetary policy and the monetary transmission mechanism in Thailand in light of the Asian crisis in 1997. Existing studies that adopt structural vector auto-regression (VAR) approaches do not give a clear and agreed-upon view how monetary shocks are transmitted to the Thai economy that is subject to structural breaks. This study explicitly models a pre-crisis and post-crisis cointegrated VAR model. This analysis supports arguments that the trinity of open capital markets, pegged exchange rate regime, and monetary policy autonomy is inconsistent in the pre-crisis period. In contrast, the model points to an effective monetary policy in the post-crisis period. Further, the author analyzes the common driving trends of the model.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4248.

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Date of creation: 01 Jun 2007
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Handle: RePEc:wbk:wbrwps:4248

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Keywords: Economic Stabilization; Economic Theory&Research; Macroeconomic Management; Fiscal&Monetary Policy; Financial Economics;

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  1. Pesaran, M. H. & Smith, Ron P., 1998. "Structural Analysis of Cointegrating VARs," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9811, Faculty of Economics, University of Cambridge.
  2. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, Elsevier, vol. 14(1-2), pages 3-24, February.
  3. Disyatat, Piti & Vongsinsirikul, Pinnarat, 2003. "Monetary policy and the transmission mechanism in Thailand," Journal of Asian Economics, Elsevier, Elsevier, vol. 14(3), pages 389-418, June.
  4. Bernanke, Ben S. & Mihov, Ilian, 1998. "The liquidity effect and long-run neutrality," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 49(1), pages 149-194, December.
  5. David Vines & Peter Warr, 2000. "Thailand’s Investment-Driven Boom and Crisis," Economics Series Working Papers 51, University of Oxford, Department of Economics.
  6. Doornik, Jurgen A & Hendry, David F & Nielsen, Bent, 1998. " Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 12(5), pages 533-72, December.
  7. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers, C.V. Starr Center for Applied Economics, New York University 94-24, C.V. Starr Center for Applied Economics, New York University.
  8. By James Morsink & Tamim Bayoumi, 2001. "A Peek Inside the Black Box: The Monetary Transmission Mechanism in Japan," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 2.
  9. Gregor Irwin & David Vines, 2003. "Government Guarantees, Investment, and Vulnerability to Financial Crises," Review of International Economics, Wiley Blackwell, vol. 11(5), pages 860-874, November.
  10. M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 12(5), pages 471-505, December.
  11. Juselius, Katarina, 1996. "An Empirical Analysis of the Changing Role of the German Bundesbank after 1983," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 791-819, November.
  12. Johansen, S., 1991. "Testing Weak Exogeneity and the Order of Cointegration in UK Money Demand Data," Papers, Helsinki - Department of Economics 78, Helsinki - Department of Economics.
  13. Abdur Chowdhury, 1997. "The financial structure and the demand for money in Thailand," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 29(3), pages 401-409.
  14. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 3-10, Fall.
  15. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer, Springer, vol. 6(4), pages 459-472, November.
  16. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago WP-97-18, Federal Reserve Bank of Chicago.
  17. Bent Nielsen, 2000. "Cointegration Analysis in the Presence of Structural Breaks in the Deterministic Trend," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1494, Econometric Society.
  18. Jenny Corbett & David Vines, 1999. "Asian Currency and Financial Crises: Lessons from Vulnerability, Crisis and Collapse," The World Economy, Wiley Blackwell, vol. 22(2), pages 155-177, 03.
  19. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
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