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Disaggregated Inflation Dynamics in Thailand: Which Shocks Matter?

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  • Nuwat Nookhwun
  • Pym Manopimoke

Abstract

This paper examines the role of sector-specific and common macroeconomic shocks towards explaining the dynamics of disaggregated price series and overall headline inflation in Thailand. Based on applying a Bayesian factor-augmented VAR model with zero and sign restrictions on a large dataset of macroeconomic and disaggregated price data, we identify domestic and global structural macroeconomic shocks and study their contributions to inflation volatility and dynamics. We find that sector-specific shocks account for over 80 percent of the variation in disaggregated price series. Common macroeconomic shocks, on the other hand, drive the majority of inflation dynamics at the aggregated level, in which most of these common shocks have origins that are global in nature. For Thailand, global demand and oil price shocks are the two main drivers of headline inflation, and transmit mainly through energy prices. We also find that the dominant role of global shocks helps explain the rather low persistence of Thai inflation movements, as they generate lower overall inflation persistence than domestically-oriented shocks.

Suggested Citation

  • Nuwat Nookhwun & Pym Manopimoke, 2023. "Disaggregated Inflation Dynamics in Thailand: Which Shocks Matter?," PIER Discussion Papers 211, Puey Ungphakorn Institute for Economic Research.
    • Handle: RePEc:pui:dpaper:211
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    More about this item

    Keywords

    Disaggregated prices; Inflation; Factor-augmented VAR; Sign restrictions; Monetary policy;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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