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

Author

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  • Teerapap Pangsapa
  • Thanaphol Kongphalee
  • Maneerat Gongsiang

Abstract

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.

Suggested Citation

  • Teerapap Pangsapa & Thanaphol Kongphalee & Maneerat Gongsiang, 2025. "A Brief Note on Thailand Household Debt Dynamics, Fisher Effects, and Monetary Policy Transmission," PIER Discussion Papers 231, Puey Ungphakorn Institute for Economic Research.
    • Handle: RePEc:pui:dpaper:231
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    References listed on IDEAS

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    1. Mathias Drehmann & Mikael Juselius & Anton Korinek, 2018. "Going With the Flows: New Borrowing, Debt Service and the Transmission of Credit Booms," NBER Working Papers 24549, National Bureau of Economic Research, Inc.
    2. Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2006. "A comparison of direct and iterated multistep AR methods for forecasting macroeconomic time series," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 499-526.
    3. Bruno Albuquerque, 2019. "One Size Fits All? Monetary Policy and Asymmetric Household Debt Cycles in U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(5), pages 1309-1353, August.
    4. Alpanda, Sami & Granziera, Eleonora & Zubairy, Sarah, 2021. "State dependence of monetary policy across business, credit and interest rate cycles," European Economic Review, Elsevier, vol. 140(C).
    5. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
    6. Mathias Drehmann & Mikael Juselius & Anton Korinek, 2018. "Going With the Flows: New Borrowing, Debt Service and the Transmission of Credit Booms," NBER Working Papers 24549, National Bureau of Economic Research, Inc.
    7. repec:zbw:bofrdp:2018_010 is not listed on IDEAS
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    More about this item

    Keywords

    Household debt; Credit cycle; Monetary policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G50 - Financial Economics - - Household Finance - - - General

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