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สถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์
Puey Ungphakorn
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Call for Papers: PIER Research Workshop 2025
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Discussion Paperdp
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Year
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14 April 2020
20201586822400000
No. 130

Uncertainty and Economic Activity: Does it Matter for Thailand?

Abstract

This paper investigates the role of domestic and foreign uncertainty shocks for macroeconomic dynamics in Thailand. We construct and compare various indicators of economic and policy uncertainty, including macroeconomic and financial uncertainty, as well as monetary policy, fiscal policy, and political uncertainty. We find that while all uncertainty measures display countercyclical behavior, they generate heterogenous effects on real GDP and its components depending on the type of shock. In general, the magnitude of real activity decline in response to economic and policy uncertainty shocks are on the scale of 1–2 percent, with most of the transmission occurring through investment and trade flows rather than consumption demand. In terms of persistence, Thai macroeconomic uncertainty shocks generate sudden impacts, while the effect of other shocks on the economy are more gradual. Despite being a small open economy, we find that domestic uncertainty shocks can be as prominent as uncertainty shocks that spillover from abroad. Thai monetary policy shocks generate declines in real activity that are as large and persistent as US financial uncertainty shocks, whereas the impact of both Thai fiscal policy uncertainty and US economic policy are both rather short-lived. Furthermore, we find that uncertainty is a key driver of fluctuations in domestic output, with certain types of uncertainty being able to explain up to 40 percent of the variation in real activity, even in the long run. Finally, we observe asymmetry in the effects of downside versus upside economic uncertainty shocks, but no difference between uncertainty of short versus long horizons.

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JEL: D81E32F42
Tags: economicpolicyuncertaintyemerging marketspillovers
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Tosapol Apaitan
Tosapol Apaitan
Bank of Thailand
Pongsak Luangaram
Pongsak Luangaram
Chulalongkorn University
Pym Manopimoke
Pym Manopimoke
Bank of Thailand

Puey Ungphakorn Institute for Economic Research

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Email: pier@bot.or.th

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