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The role of interest rates in business cycle fluctuations in emerging countries: the case of Thailand

Author

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  • Ivan Tchakarov

    (Asia and Pacific Department, International Monetary Fund, (IMF), Washington, D.C.)

  • Selim Elekdag

    (Research Department, IMF, Washington, D.C.)

Abstract

Emerging economies have enjoyed an exceptionally favourable economic and financing environment throughout 2004 and 2005, supported by solid global growth, low interest rates and suppressed credit spreads. The easy-money policy of the United States of America in recent years has spread worldwide, creating an environment of low interest rates in international markets. If global interest rates were to take a sudden course upward, this would increase the cost of borrowing for emerging economies and lead to less hospitable financing conditions for emerging markets. The purpose of this paper is to measure the effect of shocks on global interest rates on real activity in Thailand. The analysis employs the Global Economy Model developed by the Research Department of the International Monetary Fund and finds that it would be best for Thailand to minimize the effects of rising global interest rates if it were to follow a flexible exchange rate policy.

Suggested Citation

  • Ivan Tchakarov & Selim Elekdag, 2006. "The role of interest rates in business cycle fluctuations in emerging countries: the case of Thailand," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 13(1), pages 53-73, June.
    • Handle: RePEc:unt:jnapdj:v:13:y:2006:i:1:p:53-73
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    1. Taiyo Yoshimi, 2014. "Lending Rate Spread Shock and Monetary Policy Arrangements: A Small Open Economy Model for ASEAN Countries," Asian Economic Journal, East Asian Economic Association, vol. 28(1), pages 19-39, March.

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