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Monetary policy and the first- and second-moment exchange rate change during the global financial crisis: Evidence from Thailand

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  • Vithessonthi, Chaiporn

Abstract

Using a sample of monetary policy announcements in Thailand over the period 2003–2011, I show that a monetary policy surprise tends to affect the return and volatility of the Thai baht. In the full sample, a 1% unexpected increase in the policy rate leads to an about 1.8% depreciation of the baht against the Japanese yen. During periods of high interest rate differentials, an unexpected increase in the policy rate leads to a substantial depreciation of the baht against the US dollar (about 1%) and the British pound (about 2.6%). While Thai monetary policy surprises have no effect on the baht against the dollar in the spot market, they have a significant effect on the baht against the dollar in the forwards market. During the non-financial crisis period, an unexpected increase in the policy rate on average results in a large depreciation of the baht/dollar forward rates: 6.6% and 13.7% for two-month and three-month forward rates, respectively.

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  • Vithessonthi, Chaiporn, 2014. "Monetary policy and the first- and second-moment exchange rate change during the global financial crisis: Evidence from Thailand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 170-194.
  • Handle: RePEc:eee:intfin:v:29:y:2014:i:c:p:170-194
    DOI: 10.1016/j.intfin.2013.12.006
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    Cited by:

    1. Chang, Ming-Jen & Su, Che-Yi, 2014. "The dynamic relationship between exchange rates and macroeconomic fundamentals: Evidence from Pacific Rim countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 30(C), pages 220-246.
    2. repec:eee:ecmode:v:67:y:2017:i:c:p:261-274 is not listed on IDEAS
    3. Stylianos X. Koufadakis, 2015. "Asymmetries on Closed End Country Funds Premium and Monetary Policy Announcements: An Approach Trough the Perspective of Foreign Countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 65(3-4), pages 29-65, july-Dece.
    4. Jieun Lee & Doojin Ryu & Ali M. Kutan, 2016. "Monetary Policy Announcements, Communication, and Stock Market Liquidity," Australian Economic Papers, Wiley Blackwell, vol. 55(3), pages 227-250, September.

    More about this item

    Keywords

    Exchange rate return; Exchange rate volatility; Financial crisis; Interest rate differential; Monetary policy;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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