IDEAS home Printed from https://ideas.repec.org/a/wei/journl/v8y2018i1p11-24.html
   My bibliography  Save this article

How Does the Policy Rate Respond to Output and Prices in Thailand?

Author

Listed:
  • Komain Jiranyakul

    (School of Development Economics, National Institute of Development Administration, Bangkok, Thailand)

Abstract

This paper empirically investigates how the policy rate as a monetary policy stance reacts to output and price level in Thailand during 2005 and 2016. An empirical relationship that characterizes the way the Bank of Thailand adjusts its policy rate to output growth and inflation is identified. The results from Johansen cointegration test show that there exists a long-run relationship of the policy rate with real GDP and prices. This long-run equation differs from the empirical Taylor-type rule. However, the result from short-run dynamics captures the short-run interest rate equation. The partial adjustment coefficient in the estimated interest rate equation is negative and highly significant, which indicates that any deviation of the policy rate from its equilibrium value is corrected by monetary policy actions. Furthermore, there is long-run causality running from inflation and economic growth to a change in the policy rate. In the short run, economic growth does not negatively cause a change in the policy rate while inflation positively causes a change in the policy rate. Also, impulse response analysis from an unrestricted VAR model indicates that a shock to inflation has a stronger impact on the fluctuations in the policy rate a shock to output growth does.

Suggested Citation

  • Komain Jiranyakul, 2018. "How Does the Policy Rate Respond to Output and Prices in Thailand?," Economic Research Guardian, Mutascu Publishing, vol. 8(1), pages 11-24, June.
    • Handle: RePEc:wei:journl:v:8:y:2018:i:1:p:11-24
    as

    Download full text from publisher

    File URL: http://www.ecrg.ro/files/p2018.8(1)4y2.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. Baxa, Jaromír & Horváth, Roman & Vašíček, Bořek, 2013. "Time-varying monetary-policy rules and financial stress: Does financial instability matter for monetary policy?," Journal of Financial Stability, Elsevier, vol. 9(1), pages 117-138.
    3. Eleftheriou, Maria, 2009. "Monetary policy in Germany: A cointegration analysis on the relevance of interest rate rules," Economic Modelling, Elsevier, vol. 26(5), pages 946-960, September.
    4. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    5. Minford, Patrick & Perugini, Francesco & Srinivasan, Naveen, 2002. "Are interest rate regressions evidence for a Taylor rule?," Economics Letters, Elsevier, vol. 76(1), pages 145-150, June.
    6. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    7. Seip, Knut L. & McNown, Robert, 2013. "Monetary policy and stability during six periods in US economic history: 1959–2008: a novel, nonlinear monetary policy rule," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 307-325.
    8. Mehra, Yash P., 2001. "The bond rate and estimated monetary policy rules," Journal of Economics and Business, Elsevier, vol. 53(4), pages 345-358.
    9. Richard H. Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    10. Fernandez, Adriana Z. & Koenig, Evan F. & Nikolsko-Rzhevskyy, Alex, 2010. "Can alternative Taylor-rule specifications describe Federal Reserve policy decisions?," Journal of Policy Modeling, Elsevier, vol. 32(6), pages 733-757, November.
    11. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Käfer Benjamin, 2014. "The Taylor Rule and Financial Stability – A Literature Review with Application for the Eurozone," Review of Economics, De Gruyter, vol. 65(2), pages 159-192, August.
    2. Zhu, Sheng & Kavanagh, Ella & O’Sullivan, Niall, 2021. "Inflation targeting and financial conditions: UK monetary policy during the great moderation and financial crisis," Journal of Financial Stability, Elsevier, vol. 53(C).
    3. Jens Richard Clausen & Carsten-Patrick Meier, 2005. "Did the Bundesbank Follow a Taylor Rule? An Analysis Based on Real-Time Data," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(II), pages 213-246, June.
    4. de Andrade, Joaquim Pinto & Divino, Jose Angelo, 2005. "Monetary policy of the Bank of Japan--inflation target versus exchange rate target," Japan and the World Economy, Elsevier, vol. 17(2), pages 189-208, April.
    5. Sofia Bauducco & Rodrigo Caputo, 2020. "Wicksellian Rules and the Taylor Principle: Some Practical Implications," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 340-368, January.
    6. Gnabo, Jean-Yves & Moccero, Diego Nicolas, 2015. "Risk management, nonlinearity and aggressiveness in monetary policy: The case of the US Fed," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 281-294.
    7. Jiranyakul, Komain, 2016. "Identifying the Effects of Monetary Policy Shock on Output and Prices in Thailand," MPRA Paper 75708, University Library of Munich, Germany.
    8. Shigeyuki Hamori & Naoko Hamori, 2009. "Introduction of the Euro and the Monetary Policy of the European Central Bank," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7169, December.
    9. Klose, Jens, 2014. "Determining structural breaks in central bank reaction functions of the financial crisis," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 78-90.
    10. Shengzu Wang & Jagdish Handa, 2007. "Monetary policy rules under a fixed exchange rate regime: empirical evidence from China," Applied Financial Economics, Taylor & Francis Journals, vol. 17(12), pages 941-950.
    11. Choo, Han Gwang & Kurita, Takamitsu, 2011. "An empirical investigation of monetary interaction in the Korean economy," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 267-280, April.
    12. Eleftheriou, Maria, 2009. "Monetary policy in Germany: A cointegration analysis on the relevance of interest rate rules," Economic Modelling, Elsevier, vol. 26(5), pages 946-960, September.
    13. Batini, Nicoletta & Harrison, Richard & Millard, Stephen P., 2003. "Monetary policy rules for an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2059-2094, September.
    14. Bennani, Hamza, 2018. "Media coverage and ECB policy-making: Evidence from an augmented Taylor rule," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 26-38.
    15. repec:hal:wpspec:info:hdl:2441/2961 is not listed on IDEAS
    16. Kuikeu, Oscar, 2011. "Arguments contre la zone franc [Against the cfa franc zone]," MPRA Paper 33710, University Library of Munich, Germany.
    17. Wollmershauser, Timo, 2006. "Should central banks react to exchange rate movements? An analysis of the robustness of simple policy rules under exchange rate uncertainty," Journal of Macroeconomics, Elsevier, vol. 28(3), pages 493-519, September.
    18. Ayşegül Ladin SÜMER, 2020. "Optimal Taylor rule in the new era central banking perspective," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(622), S), pages 159-170, Spring.
    19. Coenen, Gunter & Wieland, Volker, 2005. "A small estimated euro area model with rational expectations and nominal rigidities," European Economic Review, Elsevier, vol. 49(5), pages 1081-1104, July.
    20. d'Albis, Hippolyte & Augeraud-Véron, Emmanuelle & Hupkes, Hermen Jan, 2014. "Bounded interest rate feedback rules in continuous-time," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 227-236.
    21. Pär Österholm, 2005. "The Taylor Rule: A Spurious Regression?," Bulletin of Economic Research, Wiley Blackwell, vol. 57(3), pages 217-247, July.

    More about this item

    Keywords

    Policy rate; Output; Prices; Error correction mechanism; Impulse responses;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wei:journl:v:8:y:2018:i:1:p:11-24. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mihai Mutascu (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.