IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/83544.html
   My bibliography  Save this paper

Monetary policy rule and its performance under inflation targeting: the evidence of Thailand

Author

Listed:
  • Taguchi, Hiroyuki
  • Wanasilp, Mesa

Abstract

This article reviews the Thailand monetary policy rule and its performance under the adoption of inflation targeting regime since 2000. The study estimates the policy reaction function to see if the inflation targeting has been linked with an inflation-responsive monetary policy rule, and investigates whether the monetary policy rule would actually have its transmission effect on inflation, through tracing the impulse responses of inflation rate to monetary policy shocks in vector autoregressive (VAR) and structural VAR models. The study contributes to the literature by updating the assessment of the Thailand monetary policy through covering the period after 2015, when the Bank of Thailand has upgraded its inflation targeting framework by transforming it from range target to point target to provide a clearer policy signal to the public. The main findings are as follows. The estimation outcomes of the policy reaction function show that the Thailand monetary policy rule under the inflation targeting is characterized as an inflation- and exchange-rate- responsive rule with forward-looking manner, which is countercyclical against inflation in the long run, but is accompanied with slow adjustment toward a target policy rate. The results from the impulse response analyses imply that the Thailand monetary policy under the inflation targeting has only a marginal transmission effect on inflation probably due to the slow adjustment of policy rate.

Suggested Citation

  • Taguchi, Hiroyuki & Wanasilp, Mesa, 2017. "Monetary policy rule and its performance under inflation targeting: the evidence of Thailand," MPRA Paper 83544, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:83544
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/83544/1/MPRA_paper_83544.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Phiromswad, Piyachart, 2015. "Measuring monetary policy with empirically grounded restrictions: An application to Thailand," Journal of Asian Economics, Elsevier, vol. 38(C), pages 104-113.
    2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    3. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
    4. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372, Central Bank of Chile.
    5. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    6. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
    7. Hiroyuki Taguchi & Chizuru Kato, 2011. "Assessing the performance of inflation targeting in East Asian economies," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 25(1), pages 93-102, May.
    8. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging-Market Countries," American Economic Review, American Economic Association, vol. 90(2), pages 105-109, May.
    9. Alok Bhargava, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 369-384.
    10. Lin, Shu & Ye, Haichun, 2009. "Does inflation targeting make a difference in developing countries?," Journal of Development Economics, Elsevier, vol. 89(1), pages 118-123, May.
    11. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    12. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, vol. 3(Aug), pages 9-110.
    13. Barry Eichengreen, 2006. "Can Emerging Markets Float? Should They Inflation Target?," Chapters, in: Matías Vernengo (ed.), Monetary Integration and Dollarization, chapter 8, Edward Elgar Publishing.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Taguchi, Hiroyuki, 2018. "Monetary policy rule under inflation targeting: the case of Mongolia," MPRA Paper 86132, University Library of Munich, Germany.
    2. Hiroyuki Taguchi & Woong-Ki Sohn, 2014. "Inflation Targeting and the Pass-through Rate in East Asian Economies," Asian Economic Journal, East Asian Economic Association, vol. 28(2), pages 139-159, June.
    3. Taguchi, Hiroyuki, 2020. "Monetary Policy Rule and Taylor Principle in Emerging ASEAN Economies: GMM and DSGE Approaches," MPRA Paper 100847, University Library of Munich, Germany.
    4. Hiroyuki Taguchi & Kenichi Tamegawa & Mesa Wanasilp, 2020. "Taylor Principle under Inflation Targeting in Emerging ASEAN Economies: GMM and DSGE Approaches," Bulletin of Applied Economics, Risk Market Journals, vol. 7(2), pages 35-47.
    5. Hiroyuki Taguchi & Chizuru Kato, 2011. "Assessing the performance of inflation targeting in East Asian economies," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 25(1), pages 93-102, May.
    6. Valera, Harold Glenn A. & Holmes, Mark J. & Hassan, Gazi M., 2017. "How credible is inflation targeting in Asia? A quantile unit root perspective," Economic Modelling, Elsevier, vol. 60(C), pages 194-210.
    7. Lucotte, Yannick, 2010. "The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?," MPRA Paper 27118, University Library of Munich, Germany.
    8. Aizenman, Joshua & Hutchison, Michael & Noy, Ilan, 2011. "Inflation Targeting and Real Exchange Rates in Emerging Markets," World Development, Elsevier, vol. 39(5), pages 712-724, May.
    9. Soe, Than Than & Kakinaka, Makoto, 2018. "Inflation targeting and income velocity in developing economies: Some international evidence," The North American Journal of Economics and Finance, Elsevier, vol. 44(C), pages 44-61.
    10. Alpanda, Sami & Honig, Adam, 2014. "The impact of central bank independence on the performance of inflation targeting regimes," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 118-135.
    11. Alexandru MINEA & Jean-Louis COMBES & Weneyam Hippolyte BALIMA, 2015. "Sovereign Debt Risk in Emerging Countries: Does Inflation Targeting Adoption Make Any Difference?," Working Papers 201504, CERDI.
    12. Minella, Andre & de Freitas, Paulo Springer & Goldfajn, Ilan & Muinhos, Marcelo Kfoury, 2003. "Inflation targeting in Brazil: constructing credibility under exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 1015-1040, December.
    13. Mehrotra, Aaron & Sánchez-Fung, José R., 2011. "Assessing McCallum and Taylor rules in a cross-section of emerging market economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(2), pages 207-228, April.
    14. Taguchi, Hiroyuki & Kato, Chizuru, 2011. "東アジア諸国のインフレターゲットと日本への示唆 [Inflation targeting in east Asia economies and its implication to Japan]," MPRA Paper 64407, University Library of Munich, Germany.
    15. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372, Central Bank of Chile.
    16. Kwapil, Claudia & Scharler, Johann, 2010. "Interest rate pass-through, monetary policy rules and macroeconomic stability," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 236-251, March.
    17. Veloso, Thiago & Meurer, Roberto & Da Silva, Sergio, 2007. "Inflation targeting and optimal control theory," MPRA Paper 3834, University Library of Munich, Germany.
    18. Gabriela Bezerra De Medeiros & Marcelo Savino Portugal & Edilean Kleber Da Silva Bejarano Aragon, 2016. "Endogeneity And Nonlinearities In Central Bank Of Brazil’S Reaction Functions: An Inverse Quantile Regression Approach," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 061, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    19. Gabriela Bezerra Medeiros & Marcelo Savino Portugal & Edilean Kleber da Silva Bejarano Aragón, 2017. "Endogeneity and nonlinearities in Central Bank of Brazil’s reaction functions: an inverse quantile regression approach," Empirical Economics, Springer, vol. 53(4), pages 1503-1527, December.
    20. Berg, Andrew & Borensztein, Eduardo & Mauro, Paolo, 2002. "An evaluation of monetary regime options for Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 213-235, December.

    More about this item

    Keywords

    Monetary policy rule; Inflation targeting; The Bank of Thailand; Policy reaction function; and Vector autoregressive model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:83544. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.