A Brief Note on Thailand Household Debt Dynamics, Fisher Effects, and Monetary Policy Transmission

This paper examines the complex relationship between monetary policy and household debt dynamics in Thailand. Using a household debt law of motion framework, we decompose changes in the household debt-to-GDP ratio into two key components: net new borrowing and the Fisher effect. Our analysis reveals that monetary policy creates significant intertemporal trade-offs in managing household debt. While monetary easing reduces the debt service burden in the short term, it simultaneously stimulates new borrowing, potentially leading to higher debt accumulation over time. Employing both local projection methods and Bayesian vector autoregression models, we further demonstrate that these policy effects are state-dependent. Monetary policy's long-term trade-off is substantially weaker during high-leverage periods compared to low-leverage environments, suggesting potential policy benefits in high-debt contexts where new borrowing is already constrained. Our results highlight the importance of considering credit cycle conditions when implementing monetary policy.