PIER Discussion Paper เป็นช่องทางในการเผยแพร่และเป็นฐานข้อมูลของงานวิจัยเชิงลึกด้านเศรษฐศาสตร์ในประเทศไทย เปิดกว้างให้นักวิจัยทั่วไปในการนำเสนอผลงาน โดยจะมีผู้ทรงคุณวุฒิพิจารณาถึงความสอดคล้องกับวัตถุประสงค์ของช่องทางการเผยแพร่ ทั้งนี้ PIER Discussion Paper ไม่ได้เป็นวารสารวิชาการ ไม่มีการสงวนลิขสิทธิ์ ผู้เขียนสามารถเผยแพร่บทความในช่องทางอื่นหรือส่งตีพิมพ์ในวารสารทางวิชาการต่อไปได้ ผู้สนใจโปรดส่งบทความมาที่ firstname.lastname@example.org ภายใต้หัวข้อ “PIER Discussion Paper Submission”
Economic impacts of Political Uncertainty in Thailand
This paper aims to analyze political uncertainty in Thailand by looking at various dimensions of political uncertainty and quantifying the economic impacts. Based on keyword search in Thai-language newspapers, the paper proposes five measures related to different aspects of political uncertainty. These are: (1) political protest (2) official measures in dealing with political violence (3) coup d’état (4) parliament dissolution or election and (5) political structural reform, including the aggregate index of political uncertainty. We find that the overall political uncertainty in Thailand has been in the rising trend during the past 20 years. In particular, during the past 10 years, the main source of Thai political uncertainty comes from uncertainty related to political structural reform. Based on various econometric specifications, rising political uncertainty is found to have significant negative impacts on the Thai economy both in the short run – particularly, private investment – and economic growth in the long run. Nevertheless, we find that the degree of the economic impact and statistical significance on different components of macroeconomy is quite varied, reflecting complicated interaction between political factors and economic outcome.
More Than Words: A Textual Analysis of Monetary Policy Communication
This paper employs various tools from computational linguistics to monetary policy statements to gain exploratory insights into the nature of central bank communication. The sample was taken from a wide array of central banks, covering major central banks and others under the inflation-targeting (IT) regime, from 2000 to 2015. Three major aspects of communication were examined in this study, namely (i) readability – the ease with which a reader can understand a written text, (ii) topics – the key themes that are discussed in the policy statements, and (iii) tones – how positive/negative the outlook is in the central bank’s language assessment.
Macroprudential Policy in a Bubble-Creation Economy
This paper analyzes macroprudential policy in the form of loan-to-value (LTV) restriction in a bubble-creation economy of Martin and Ventura (forth- coming). We find that implementation of LTV policy may generate multiple equilibria. Moreover, its effectiveness in terms of investment and size of bubbles depends on the degree of financial friction. In high-capital steady state, low (high) financial friction implies that bubbles originally crowd out (in) investment, so that implementation of LTV policy causes bubbles to decrease (remain unchanged) and enhances (reduces) investment. However, in low-capital equilibrium, the policy has ambiguous effects. LTV policy may help to lower the possibility of sunspot equilibria in two aspects: (1) by destabilizing the low-capital steady state and (2) by confining the set of consistent market sentiments in the presence of high financial friction.
Currency Wars: Who Gains from the Battle?
We study the growth effects of currency undervaluation when countries employ active exchange rate management policies or impose capital controls, using a panel dataset of 185 countries. Applying two-stage regressions, we find that changes in undervaluation driven by exchange rate management and capital control policies have no significant impact on economic growth. Undervaluation that leads to higher growth mainly stems from policies that lower government consumption, reduce inflation and increase domestic savings. However, these policies are good for growth by themselves, with only limited additional growth effects through increased currency undervaluation. In sum, we find no evidence that battling in the currency depreciation war significantly increases a country’s growth rate.
Stability of Thai Baht: Tales from the Tails
We demonstrate how the EVT-based signalling approach for currency crises can be applied to an individual country with a small sample size. Using Thai historical data, first, we study the tail characteristics of the distributions of two Thai baht instability measures and 21 economic fundamentals. Then, we test asymptotic dependence between the currency instability measures and lagged economic fundamentals. Empirically, we find that the distributions of both currency instability measures and economic variables are heavy tailed. Assuming a normal distribution for the variables tends to underestimate the probability of extreme events. Furthermore, most of the economic variables which are usually used as signalling indicators for currency crises are asymptotically independent of the currency instability measures. Signals issued by these variables are thus not reliable. Nevertheless, the non-parametric EVT approach facilitates the selection of economic indicators with credible signals and high crisis prediction success.
Thai Inflation Dynamics: A View from Micro CPI Data
This paper examines the patterns of price adjustment at the micro level in order to further our understanding of price rigidity at the aggregate level. We highlight 5 stylized facts: 1) Prices change infrequently with a mean duration of approximately 4 to 7 months between price changes; 2) Price decreases are common accounting for roughly 45 percent of all price changes; 3) Price changes, both increases and decreases, are sizable compared to the prevailing in ation rate; 4) The size of price changes covaries strongly with the rate of in ation, whereas the fraction of items changing prices does not; and 5) There is signicant dispersion in price levels as well as in the synchronicity of price changes across geographical regions. Based on a dynamic factor model, we also utilize prices at the disaggregated level to perform an in ation decomposition to understand the underlying driving factors of in ation. The key ndings are: 1) Prices at the micro level are driven mainly by idiosyncratic shocks but these shocks become less important for CPI in ation at the aggregate level; 2) Pure in ation which drives long-term price movements in Thailand is responsible for approximately 10 percent of overall price movements; 3) More than half of all within-quarter uctuations can be classied as relative price changes in response to aggregate shocks; 4) The short-run in ation-output tradeoff which appears weak in aggregate data becomes much stronger once volatile idiosyncratic price changes are removed.
Dynamic Connectedness in Emerging Asian Equity Markets
This paper examines dynamic connectedness among emerging Asian equity markets as well as explores their linkages vis-à-vis other major global markets. We find that international equity markets are tightly integrated. Measuring connectedness based on a generalized Vector Autoregressive model, more than half of all total forecast error variance in equity return and volatility shocks come from other markets as opposed to country own shocks. When examining the degree of connectedness over time, we find that international stock markets have become increasingly connected, with a gentle upward trend since the Asian financial crisis but with a rapid burst during the global financial crisis. Despite the growing importance of Asian emerging markets in the world economy, we find that their influence on advanced economies is still relatively small, with no significant increase over time. During the past decade, advanced markets have been consistently net transmitters of shocks while emerging Asian markets act as net receivers. Based on the nature of equity shock spillovers, we also find that advanced countries are still tightly connected amongst themselves while intraregional connectedness within Asia remains strong. By investigating whether uncertainty plays an important role in explaining the degree of stock market connectedness, we find that economic policy uncertainty from the US is an important source of financial shock spillover for the majority of international equity markets. In contrast, US financial market uncertainty as proxied by the VIX index drives equity market spillovers only among advanced economies.
Trend Inflation Estimates for Thailand from Disaggregated Data
This paper constructs a new trend inflation measure for Thailand based on the multivariate unobserved components model with stochastic volatility and outlier adjustments (MUCSVO) of Stock and Watson (2015). Similar to core inflation, the MUCSVO constructs a measure of the underlying trend based on disaggregated data, but with time-varying sectoral weights that vary with the volatility, persistence and co-movement of the sectoral inflation series. Based on the empirical results, the majority of sectoral weights show significant time-variation, in contrast to their relatively stable expenditure shares. Volatile food and energy sectors that are typically excluded from core inflation measures also turn out to be less volatile, more persistent and explain approximately 10 percent of filtered trend inflation rate movements. Compared to various other trend inflation measures, we show that the MUCSVO delivers trend estimates that are smoother, has narrower confidence bands, and are able to forecast 8 quarter-ahead average inflation more accurately both in-sample and out-of-sample, especially in the post 2000 period.
Monetary Policy with Imperfect Knowledge in a Small Open Economy
Yu-chin Chen and Pisut Kulthanavit
Incorporating adaptive learning into a small-open-economy DSGE model, we analyze how monetary policy rules should adjust when agents’ information set deviates from that assumed under the rational expectations framework. We find that when agents observe current shocks but do not observe the parameters governing key macroeconomic dynamics, the resulting distortion is small and the preferred policy under rational expectations works well. However, the welfare cost of imperfect knowledge becomes quite severe when agents also have to learn about the structural shocks to the economy. Monetary policy can play a significant role in mitigating distortions associated with this form of imperfect knowledge.
Evaluating Thailand’s Free Basic Electricity Program
This study evaluates the performance of Thailand’s Free Basic Electricity (FBE) program along three dimensions: targeting effectiveness, benefit adequacy, and subsidy burden distribution. While the FBE benefits reaches the targeted population (low-income families) quite well, the benefit leakage to the non-targeted population could result in a significant increase in the overall subsidy cost. Furthermore, the current 50-unit free quota given by the FBE program is insufficient for the basic need of many low-income families. Lastly, the FBE subsidy burden falls exclusively on the industrial/commercial customers, but the cost increase has been rather small. Therefore, Thailand’s FBE program can be markedly improved by introducing a more effective targeting approach to reduce leakage, which will allow the government to raise the free electricity quota while maintaining the same overall subsidy cost.
The Social Cost of Thailand's Transportation Fuel Pricing Policy
The price structure of Thailand’s transportation fuels has always been heavily distorted by the government. The prices of diesel and biofuels are consistently subsidized, while the prices of other fuels are raised above their competitive level in order to provide cross-subsidies to diesel and biofuels. Price distortion in this fashion leads to over- /under-consumption of transportation fuels relative to the socially optimal level. This study estimates the economic and social cost of the price distortions within Thailand’s transportation fuel market that stem from inecient price structure and cross subsidies.
Household Debt and Delinquency over the Life Cycle
This paper uses loan-level data from Thailand’s National Credit Bureau to study household debt over the life cycle of borrowers. The wide coverage and the granularity of the data allow us to decompose the aggregate, commonly-used debt per capita and delinquency rate into components that unveil the extensive and intensive margins of household indebtedness. This decomposition allows us to analyze debt holding, debt portfolio, and delinquency for each age and cohort. We find the striking inverted-U life cycle patterns of indebtedness as predicted by economic theories. However, peaks are reached at different ages for different loan products and different lenders. We also find that debt has expanded over time for all age groups. In particular, the younger cohorts seem to originate debt earlier in their lives than the older generations. Meanwhile, older borrowers remain indebted well past their retirement age. Finally, we find a downward pattern of delinquency over the life cycle. Our findings have important policy implications on financial access and distress of households as well as economic development and financial stability of the economy.
Thailand’s Household Debt through the Lens of Credit Bureau Data: Debt and Delinquency
This paper uses loan-level data from the National Credit Bureau to study household debt in Thailand. The wide coverage and the granularity of the data allow us to analyze prevalence, intensity, and distribution of debt and delinquency by loan product, lender, and borrower. We show that there are tremendous heterogeneities in debt and delinquency across these attributes. Overall, credit access in Thailand appears moderate and limited for housing loans. Thais begin to have debt earlier in their lives and hold debt until very old. Household debt is largely concentrated and plagued with high debt intensity and delinquency prevalence, especially among the young working age population, implying a potential increase in the vulnerability of the financial system and prolonged sluggish domestic spending. Our findings have important implications for policy design and targeting.
What Anchors for the Natural Rate of Interest?
The paper takes a critical look at the conceptual and empirical underpinnings of prevailing explanations of low real (inflation-adjusted) interest rates over long horizons and finds them incomplete. The role of monetary policy, and its interaction with the financial cycle in particular, deserve greater attention. By linking booms and busts, the financial cycle generates important path dependencies that give rise to intertemporal policy trade-offs. Policy today constrains policy tomorrow. The policy regime is not neutral and can exert a persistent influence on the economy’s evolution, including on the real interest rate. This raises serious conceptual and practical questions about the use of the natural interest rate as a monetary policy guidepost. In developing the analysis, the paper also provides a specific critique of the safe asset shortage hypothesis – a hypothesis that has gained considerable popularity in recent years.
Why So Low for So Long? A long-term View of Real Interest Rates
Prevailing explanations of the decline in real interest rates since the early 1980s are premised on the notion that real interest rates are driven by variations in desired saving and investment. But based on data stretching back to 1870 for 19 countries, our systematic analysis casts doubt on this view. The link between real interest rates and saving-investment determinants appears tenuous. While it is possible to find some relationships consistent with the theory in some periods, particularly over the last 30 years, they do not survive over the extended sample. This holds both at the national and global level. By contrast, we find evidence that persistent shifts in real interest rates coincide with changes in monetary regimes. Moreover, external influences on countries’ real interest rates appear to reflect idiosyncratic variations in interest rates of countries that dominate global monetary and financial conditions rather than common movements in global saving and investment. All this points to an underrated role of monetary policy in determining real interest rates over long horizons.
Monetary Policy and Financial Spillovers: Losing Traction?
Has financial globalisation compromised central banks’ ability to manage domestic financial conditions? This paper tackles this question by studying the dynamics of bond yields encompassing 31 advanced and emerging market economies. To gauge the extent to which external financial conditions complicate the conduct of monetary policy, we isolate a “contagion” component by focusing on comovements in measures of bond return risk premia that are unrelated to economic fundamentals. Our contagion measure is designed to more accurately capture spillovers driven by exogenous global shifts in risk preference or appetite. The analysis reaches several conclusions that run counter to popular presumptions based on comovements in bond yields. In particular, emerging market economies appear to be much less susceptible to global contagion than advanced economies, and the overall sensitivities to contagion have not increased post-crisis.
The Journey to Less-Cash Society: Thailand’s Payment System at a Crossroads
Digital technology is changing the way we transact and pay each other, but cash usage remains dominant in many countries. In Thailand, it remains a question whether and to what extent electronic payments (e-payment) can replace cash. What is the role of a central bank amid challenges and opportunities at this crossroads? The paper explores global trends in cash and e-payment and outlines Thailand’s existing retail payment landscape. Both physical and IT/ICT infrastructure are assessed at micro-level with regard to Thailand’s readiness to move away from cash. However, given coexistence of cash and e-payment at present, we explore ways in which efficiency of cash management process can be improved. Data on cash distribution by geographical area are utilized to illustrate usage of Thai consumers and identify costs and inefficiency associated with cash management. On the other hand, adoption of e-payment can play a critical role in moving toward a less-cash society, if not a cashless one. The paper highlights the latest data on e-payment behavior in Thailand, especially PromptPay transactions as well as mobile/internet transactions after the transfer fee reduction in March 2018.