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EISSN: 2313-3724, Print ISSN:2313-626X

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 Volume 4, Issue 12 (December 2017), Pages: 62-67


 Original Research Paper

 Title: Unveiling the behaviour of policy reaction function in Thailand: A pre and post crisis investigation

 Author(s):  Lavaneesvari Manogaran *, Siok Kun Sek


 School of Mathematical Sciences, Universiti Sains Malaysia, 11800 Minden, Penang, Malaysia

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Thailand was one of the first emerging Asian economies to collapse following the financial crisis of 1997-1998. Correspondingly the monetary policy regime of this country has gone through an extreme shift from a rigid to floating exchange rate with the adoption of inflation targeting policy. Therefore, it is interesting to examine the behaviour of monetary policy of Thailand focusing on two different periods: pre-crisis and post-crisis using the threshold estimations method as evidence found on the nonlinearity structure on both sub-periods. Our results indicating, the policy reaction function of Thailand is decided based on economic growth (LGDP) and inflation (LCPI) for pre- and post-crisis respectively. Overall, the policy rule is reacting strongly to inflation gap. While policy rule is also responsive to output gap but was limited only at the post-crisis period. On the other hand, we also detected the policy rule behaving adversely to exchange rate changes aftermath crisis. To conclude, the ultimate goal of Thai monetary policy is to achieve low inflation rate for price stability. Perhaps, output gap is not the major concern since the economy has achieved high stable growth. Although Thailand was implementing inflation targeting aftermath crisis, the results revealing the existence of ‘fear of floating’ behaviour when the policy rule reacting strongly towards appreciation of exchange rate by declining the policy rate. 

 © 2017 The Authors. Published by IASE.

 This is an open access article under the CC BY-NC-ND license (

 Keywords: Inflation targeting, Monetary policy, Threshold estimation

 Article History: Received 21 February 2017, Received in revised form 18 September 2017, Accepted 9 October 2017

 Digital Object Identifier:


 Manogaran L and Sek SK (2017). Unveiling the behaviour of policy reaction function in Thailand: A pre and post crisis investigation. International Journal of Advanced and Applied Sciences, 4(12): 62-67

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