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Monetary policy, structural break, and the monetary transmission mechanism in Thailand

  • Hesse, Heiko

The paper studies monetary policy and the monetary transmission mechanism in Thailand in light of the Asian crisis in 1997. Existing studies that adopt structural vector auto-regression (VAR) approaches do not give a clear and agreed-upon view how monetary shocks are transmitted to the Thai economy that is subject to structural breaks. This study explicitly models a pre-crisis and post-crisis cointegrated VAR model. This analysis supports arguments that the trinity of open capital markets, pegged exchange rate regime, and monetary policy autonomy is inconsistent in the pre-crisis period. In contrast, the model points to an effective monetary policy in the post-crisis period. Further, the author analyzes the common driving trends of the model.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4248.

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Date of creation: 01 Jun 2007
Date of revision:
Handle: RePEc:wbk:wbrwps:4248
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  1. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
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  3. Irwin, Gregor & Vines, David, 2000. "Government Guarantees, Investment And Vulnerability To Financial Crises," CEPR Discussion Papers 2652, C.E.P.R. Discussion Papers.
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  12. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 313-334, June.
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  16. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  17. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
  18. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  19. Ben S.C. Fung, 2002. "A VAR analysis of the effects of monetary policy in East Asia," BIS Working Papers 119, Bank for International Settlements.
  20. Andreas Beyer, 1998. "Monetary Transmission in Germany: Evidence From a Structural Econometric Model," Discussion Papers 98-05, University of Copenhagen. Department of Economics.
  21. M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
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