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Call for Papers: PIER Research Workshop 2025
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Discussion Paperdp
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Year
2025
2024
2023
2022
...
7 May 2022
20221651881600000
No. 179

Exploring the Role of Exchange Rate in Inflation Targeting: Evidence from Thailand

Abstract

This paper develops a small-scale, structural general equilibrium model for the Thai economy. Using Bayesian estimation, we evaluate the conduct of monetary policy under inflation targeting regime. Specifically, we focus on three main issues. First, we investigate whether exchange rate movements are incorporated in the monetary policy formulation. Second, we conduct welfare evaluation under alternative monetary policy settings. Third, we explore how the varying degree of openness could affect the transmission mechanism. Using data over the past 20 years, we find that the Bank of Thailand adjusted policy interest rate in response to exchange rate movements and this helped to reduce both output and inflation fluctuations from global shocks and improves welfare. While higher degree of openness is found to flatten the slope of the Phillips curve, it does not necessarily reduce monetary policy effectiveness. This is because openness also affects the policy coefficients in the central bank's endogenous reaction function.

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JEL: C32E52F41
Tags: small open economy modelsmonetary policy rulesexchange ratesbayesian analysisthai economy
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.
Pongsak Luangaram
Pongsak Luangaram
Chulalongkorn University
Nipit Wongpunya
Nipit Wongpunya
Chulalongkorn University

Puey Ungphakorn Institute for Economic Research

273 Samsen Rd, Phra Nakhon, Bangkok 10200

Phone: 0-2283-6066

Email: pier@bot.or.th

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