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Inflation Dynamics and Implications on Monetary Policy

Author

Listed:
  • Vararat Khemangkorn

    (Bank of Thailand)

  • Roong Poshyananda Mallikamas

    (Bank of Thailand)

  • Pranee Sutthasri

    (Bank of Thailand)

Abstract

This paper attempts to provide some facts about the current environment where inflation seems to be originating from supply-side factors. It aims in particular to answer whether or not there is a role for monetary policy to contain such inflation and, if yes, how. From this study, it is found that in the past Thailand’s inflation dynamics were largely governed by temporary supply disruptions whose effects on inflation tended to quickly disappear on their own, unless assisted by some other factors such as accommodative monetary policy. During the past five years, however, the nature of these supply shocks has changed in line with the structural shifts in the demand and supply of oil and farm products. As a result, changes in oil and farm prices have themselves become more protracted. Under the circumstance, accommodative monetary policy could keep the impact of supply shocks on inflation even more lasting, and thus the inflation process could become more persistent as well. Therefore, the authorities must maintain high priority on monetary policy discipline and be mindful that persistently high inflation expectations could cause people to become inflation tolerant and ultimately allow inflation to stay high over an extended horizon.

Suggested Citation

  • Vararat Khemangkorn & Roong Poshyananda Mallikamas & Pranee Sutthasri, 2008. "Inflation Dynamics and Implications on Monetary Policy," Working Papers 2008-02, Monetary Policy Group, Bank of Thailand.
  • Handle: RePEc:bth:wpaper:2008-02
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    References listed on IDEAS

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    Cited by:

    1. Geraldine Dany-Knedlik & Juan Angel Garcia, 2018. "Monetary Policy and Inflation Dynamics in ASEAN Economies," Discussion Papers of DIW Berlin 1755, DIW Berlin, German Institute for Economic Research.
    2. Pym Manopimoke & Wanicha Direkudomsak, 2015. "Thai Inflation Dynamics in a Globalized Economy," PIER Discussion Papers 11., Puey Ungphakorn Institute for Economic Research, revised Nov 2015.
    3. Manopimoke, Pym & Limjaroenrat, Vorada, 2017. "Trend inflation estimates for Thailand from disaggregated data," Economic Modelling, Elsevier, vol. 65(C), pages 75-94.
    4. Hiroaki Sakurai, 2016. "The New Keynesian Phillips Curve in Thailand Through Two Financial Crises," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(4), pages 190-195, April.
    5. Pym Manopimoke & Wanicha Direkudomsak, 2015. "Thai Inflation Dynamics in a Globalized Economy," PIER Discussion Papers 11, Puey Ungphakorn Institute for Economic Research.
    6. Atchana Waiquamdee & Pranee Sutthasri & Tientip Subhanij & Surach Tanboon, 2009. "Monetary Policy and Underlying Inflation Pressures: The Essence of Monetary Policy Design," Working Papers 2009-11, Monetary Policy Group, Bank of Thailand.

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