Monetary Policy conduct in Review: The Appropriate Choice of Instruments

Runchana Pongsaparn, Panda Ketruangroch and Dhanaporn Hirunwong
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Runchana Pongsaparn: Bank of Thailand
Panda Ketruangroch: Bank of Thailand
Dhanaporn Hirunwong: Bank of Thailand

No 2012-05, Working Papers from Monetary Policy Group, Bank of Thailand

Abstract: TIn achieving price stability, a common mandate of monetary policy, central banks can choose different ways to conduct monetary policy. The difference in the conduct of monetary policy lies in the instrument they use not in the monetary policy regime per se. The paper finds that the higher the level of financial development, the higher degree of monopoly power (uniqueness) in exports and the stronger the institution, the more likely a country will use interest rate as the main monetary policy instrument. Furthermore, based on three criteria: (1) controllability of policy instrument and monetary conditions (2) the degree of counter-cyclicality and (3) the effectiveness of instrument in influencing inflation and output, interest rate appears to be an appropriate monetary policy instrument for Thailand. So far, performance of the current monetary policy framework in Thailand has been fine, with transparency through communication with the general public being one of the key factors contributing to the performance and policy effectiveness.

Keywords: Economic; Rationales; for; Central; Banking (search for similar items in EconPapers)
Pages: 8 4pages
Date: 2012-05
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-sea
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