- Title
- Exchange rate policy, monetary policy and economic growth in Thailand: a macroeconomic study, 1950-2016
- Creator
- Arwatchanakarn, Popkarn
- Relation
- University of Newcastle Research Higher Degree Thesis
- Resource Type
- thesis
- Date
- 2018
- Description
- Research Doctorate - Doctor of Philosophy (PhD)
- Description
- This thesis highlights the importance of price stability in the maintenance of macroeconomic stability with the goal of achieving a steady rate of economic growth and raising the welfare of the people. Historically, Thailand has made impressive economic progress since the 1950s. The progress has not been steady, however, with two of the primary sources of economic uncertainty being variable exchange rate arrangements and changes in official restrictions on trade and capital flows. Thailand implemented financial liberalisation, including exchange rate adjustments, in the early 1990s, and only a few years later endured the 1997–98 East Asian financial crisis, which led to the further official implementation of structural and other economic reforms. The choice of an appropriate exchange-rate regime, capital mobility policy and monetary policy strategy are essential components of macroeconomic management and performance. In the case of Thailand, the main arguments are that implementation of a fixed (pegged) exchange-rate system, without adequate accompanying controls over capital flows, can create major economic problems, including high and volatile inflation and current account imbalances. Large-scale inflows and outflows of capital can also cause boom-bust cycles and even financial crises. These issues need to be investigated to improve macroeconomic management for steady economic growth amid shocks of both domestic and foreign origin for an emerging market economy like Thailand. This study has two main objectives. First, it empirically analyses the underlying economic and monetary relations for price stability and sustained economic growth. Second, it investigates the monetary transmission mechanism under a rule-based monetary policy such as inflation targeting. This thesis achieves the first objective by developing a macroeconometric model to determine the underlying economic and monetary interrelations in the design and conduct of monetary policy for price stability. The macroeconomic model for Thailand deploys the conceptual idea developed in Hossain (1995). The multi-equation model provides a macroeconomic framework to analyse inflation, economic growth and the balance of payments. This study tests the interrelationships among the core macroeconomic variables by specifying the model’s equations following the monetarist-neoclassical theoretical framework, with the incorporation of some structural features of the Thai economy. The contribution of this model is to provide, in a systematic way, an analytical framework for the Thai economy that is useful for forecasting and policy simulation purposes. Chapter 4 reports the estimation results of the specified model. The main estimation results are that the complete models can capture the movements of core macroeconomic variables. The key variables in the macro model are interrelated, and they show that any shock to the economy, originating from domestic and foreign sources, transmits throughout the economy through various channels. A simulation approach is adopted to conduct some policy experiments by using the macroeconomic model. Consequently, the key variables and interrelations identified in the model are deployed for the investigation of the monetary policy transmission mechanisms in Thailand. The second task of this thesis is to investigate the transmission mechanisms of monetary policy in Thailand. An effective understanding of the mechanisms is of supreme importance for central banks in designing and formulating monetary policy for price stability. Structural vector autoregression (SVAR) and structural vector error correction (SVEC) models were developed after examining the interrelations among a set of macroeconomic variables. The empirical results suggest that a recursive structure, which is superior to a non-recursive structure, provides a good picture of the Thai economy and its monetary transmission mechanisms. It is suggested that interest rates, monetary aggregates and asset prices have provided the dominant channels of monetary transmission mechanisms in Thailand, while an exchange-rate channel has been of decreasing significance since the 1997 financial crisis. Also, the Thai economy is influenced by, and sensitive to, the boom-bust cycle of the global economy, especially in the US and China. The empirical results obtained support the argument that the maintenance of price stability is essential to sustaining steady economic growth, and that inflation targeting remains an effective, appropriate monetary policy strategy for Thailand. Although the policy interest rate is the main monetary policy instrument under inflation targeting, this thesis suggests that a measure of the monetary aggregate remains important in the conduct of a rule-based monetary policy for price stability. This fact is especially true if, under inflation targeting, the policy interest rate becomes less effective in a low-inflation environment and concern over inflation volatility becomes significant. In such cases, a monetary aggregate can be deployed as the alternative instrument of monetary policy. Prudential financial supervisory measures, foreign exchange rate interventions and capital measures could be useful to ensure the soundness of the financial system and macroeconomic stability. Also, policy makers should be aware of any adverse effects from external shocks as well as policy developments of foreign economies to which the Thai economy could be vulnerable.
- Subject
- price stability; economic growth; exchange rate policy; Thailand
- Identifier
- http://hdl.handle.net/1959.13/1385382
- Identifier
- uon:32218
- Rights
- Copyright 2018 Popkarn Arwatchanakarn
- Language
- eng
- Full Text
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| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | ATTACHMENT01 | Thesis | 3 MB | Adobe Acrobat PDF | View Details Download | ||
| View Details Download | ATTACHMENT02 | Abstract | 120 KB | Adobe Acrobat PDF | View Details Download |