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.
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.
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.
Extrapolative Beliefs and Exchange Rate Markets
Following Engel (2016) and Valchev (2015), this paper documents the relationship between interest rate differentials and differential returns on domestic and foreign bonds over time horizon using a broader data sample. I find that countries with higher contemporaneous interest rates earn excess positive bond returns initially in accordance with previous UIP literature. However, the sign of excess returns reverses in the medium run. Higher contemporaneous interest rates predict negative excess returns. Eventually, interest differentials have no excess return predictability. I argue that behavioral bubbles are natural and successful candidates in generating exchange rate dynamics observed in the data. In particular, I propose that investors rely not only on fundamentals (interest differentials) but also extrapolate past exchange rates when forming expectations. The proposed extrapolative model is consistent with both excess return patterns and survey evidence in the data.
A Microscopic View of Thailand’s Foreign Exchange Market: Players, Activities, and Networks
This paper explores Thailand’s foreign exchange (FX) market landscape by utilizing the Bank of Thailand’s supervisory Financial Market Statistics (FMST) data which covers the universe of onshore foreign exchange transactions in Thailand. Historical developments regarding different groups of market players and the use of foreign exchange instruments, as well as the overall market structure are documented. Through the lens of network analysis, we also provide topological descriptions of Thailand’s FX market landscape, with applications on interbank network stability. We observe low degree of concentration among the dealer banks in terms of market turnover share. In contrast, from a customer’s perspective, market share is highly concentrated within a handful of large FX customers. The network connectivity among different groups of players suggests that the Thai FX market is one that is rather segmented and clustered among similar players. A substantial degree of specialization is evident across banks in terms of FX instruments and market segments, both in the interbank network and in the retail market. Probing into the interbank network stability, we find a small subset of banks to be truly central to the FX market network, though the system appears to hold up well in stress times supported by fluidity among interbank players.
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.
FX Hedging Behavior among Thai Exporters: A Micro-level Evidence
Over the past 20 years, Thailand’s FX hedging market has evolved to accommodate demands from rising trade and investment activities. Notwithstanding the growth in the use of FX derivative instruments for investment risk management by outward investment funds and non-residents, FX hedging demand from merchandise trade remains a significant part of the market. This paper utilizes a transactional database that disaggregates exporters according to their firm-level characteristics in order to explain their hedging behavior over periods of exchange rate fluctuation. FX hedging by exporters is found to be sensitive to the movement in exchange rate and past hedging experience. These sensitivities give rise to periods of panic or complacency. The effects also vary across exporters with different sizes.
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.
The Impact of Imperfect Financial Integration and Trade on Macroeconomic Volatility and Welfare in Emerging Markets
This study examines how international integration impacts macroeconomic volatility and welfare in emerging market economies (EMEs), employing a two-country real business cycle model with constrained cross-border borrowing and imperfect access to international financial market. Parameter calibration employs 2000-2013 trade and external debt data from EMEs. The simulation shows that higher foreign debt raises output volatility, slightly reduces consumption volatility of entrepreneurs who can borrow abroad, and brings about welfare loss due to higher debt interest payments and less consumption. Households who can only save in domestic markets are largely unaffected. Restricted financial integration does not have much adverse impact when people face no other frictions domestically, suggesting the importance of domestic financial development. Higher international trade tends to be favorable for output variability, consumption smoothing, and welfare, but does not play a significant role on how cross-border borrowing affects macroeconomic volatility. The results suggest that the impacts of financial and trade integration are generally independent. It might be difficult for EMEs to achieve evident gains from greater financial integration even with high trade intensity when market imperfection exists. Increasing only trade or both types of integration together can be Pareto improving that lowers aggregate fluctuation, whereas increasing only private external debt is not.
Targeting Credit through Community Members
Delegating the allocation of public resources to community members is an increasingly popular form of delivering development programs and are associated with a tradeoff between improved information about potential beneficiaries and favoritism towards local elites. Unlike targeting cash transfers to the poor, the optimal targeting of credit is a more complex problem involving issues of productivity, repayment, and market responses: This paper analyzes this problem using a large-scale lending program, the Thai Million Baht Credit Fund, which decentralizes the allocation of loans to an elected group of community members, and provides three main results. First, exploiting a long and detailed panel, I recover pre-program structural estimates of household total factor productivity and find that resources from the program were not allocated to high-productivity, poor households, which is inconsistent with poverty and productive efficiency as targeting criteria. Second, using socioeconomic networks data, I show that actual targeting is strongly driven by connections to village elites and is related to lower program profitability, which suggests favoritism as a reason for mistargeting. Finally, I exploit quasi-experimental variation in the rollout of the program and uncover evidence that, in general equilibrium, informal credit markets compensate for targeting distortions by redirecting credit towards unconnected households, albeit at higher interest rates than those provided by the program. The results highlight the limitations of community-driven approaches to program delivery and the role of markets in attenuating potential targeting errors.
The Impact of Cash Transfers on Child Outcomes in Rural Thailand: Evidence from a Social Pension Reform
Unlike standard literature on the social pension policy and children’s outcomes, this paper provides evidence from Thailand that an introduction of small (equivalent to 2-3 days of minimum wage) but universally covered social pension can affect educational choice and work status of children living with eligible pensioners. Such a result seems to be driven by the characteristics of newly eligible pensioners who are not as poor as the pensioners under the targeted program before the reform. Our findings also show differential effects of the social pension by genders of the children and pensioners. In particular, teenage boys living with male pensioners are more likely to enroll in the secondary school compared to children in the control group living with almost eligible seniors, while the results for teenage girls are rather inconclusive.
Minimum Wage and Lives of the Poor: Evidence from Thailand
Studying how the poor respond to the minimum wage policy in Thailand, I find that a notable increase in the minimum wage has no significant impact on employment among the poor even though wage plays a vital but heterogeneous role in determining employment. Also, this policy can significantly boost expenditure among the poor residing in provinces where the minimum wage is adjusted dramatically. Surprisingly, food does not account for the largest share of consumption as the income of the poor rises. The results are still robust to additional controls and redefinition of the poverty.
Farmers and Pixels: Toward Sustainable Agricultural Finance with Space Technology
This paper explores promises of satellite technology in creating high-quality agricultural risk information necessary for unlocking market inefficiencies that have precluded sustainable development of insurance markets and overall risk management in agricultural sector, where uninsured risk remains a leading impediment of economic development. Using pixel-level, high resolution, high frequency and longitudinal satellite data together with a combination of geographical information system (GIS) data, administrative and household-level agricultural data, this paper answers three questions: (1) Can satellite data be used to generate high-quality risk information for Thai rice farmers? (2) How might the satellite-based risk information be used to crowd in sustainable markets for agricultural finance? And (3) What are potential economic impacts of having high quality agricultural data on farmers, agricultural banks and government? After illuminating the potential values of investing in high-quality agricultural data, this paper also discusses key challenges and ways forward in bringing this research into real action to enhance financial stability of farmers, financial system and government.
Distributional Effects of Monetary Policy on Housing Bubbles: Some Evidence
Empirical asset pricing has always considered housing only as an investment good. This paper explores empirically the effect of monetary policy on housing bubbles when there exists a duality in housing markets: invest (own) vs. consume (rent). Using both simple and time-varying structural vector autoregression (SVAR and TVC-SVAR) with the U.S. housing market data between 1983-2017, this paper studies monetary transmission separately in the homeowners’ market and the renters’ market. Major findings are: (i) house price is sticky in that it takes more than 2.5 years for the full impact of monetary policy to occur; (ii) there is heterogeneity in the two housing markets: house price dynamic is more consistent with its fundamental in the renters’ market rather than in the homeowners’ market. This suggests that the two markets differ in their vulnerability to housing bubbles. (iii) monetary policy can play a useful role in stabilizing housing bubbles. Results are robust to alternative identifications of monetary policy shock.
Uncovering Productivity Puzzles in Thailand: Lessons from Microdata
The Asian financial crisis in 1997 has an impact on Thailand’s productivity both in the short run and in the long run. The post-crisis productivity growth rate dropped to merely 1% per year in comparison to the pre-crisis level at 2% per year. Thus, a better understanding about the factors determining Thailand’s aggregate productivity is a key to raising Thailand’s output in the long run. Recent literature has identified resource misallocation as an important factor to explain the difference in the productivity levels between developed and developing economies. This paper uses the plant-level data to estimate the allocative efficiency and to identify the source of resource misallocation in the Thai manufacturing sector. The results suggest that the size-dependent policies could contribute to the factor misallocation and that market concentration, foreign investment, and financial deepening could help alleviate the misallocation problem at the sector level. However, R&D activities intensifies resource misallocation that calls for well-defined policies to promote knowledge spillover within industry and to reduce the frontier-laggard gap. Dynamic resource reallocation helps shore up TFP growth over the business cycle that emphasizing a set of policy to reinforce the mechanism of creative destruction.