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Revisiting Thailand's Monetary Policy Model for an Integrated Policy Analysis

Pongpitch Amatyakul, Tosapol Apaitan, Savaphol Hiruntiaranakul and Nuwat Nookhwun

No 164, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: The constraints facing conventional monetary policy during the recent COVID-19 pandemic accelerate the central banks' use of integrated policy, using multiple tools to fulfill their macroeconomic objectives. This paper, therefore, aims to improve Thailand's monetary policy model for conducting policy analyses involving multiple tools. We embed macro-financial linkages into our model, which facilitate the identification of various policy tools at the central bank's disposal. The model also features multiple sources of nonlinearity, including an effective lower bound (ELB) constraint, to better capture economic dynamics during crises. We allow for a joint calibration of several tools, including conventional interest rate policy, foreign exchange (FX) intervention, macroprudential regulations and financial measures. Last, given a greater emphasis on financial stability, we attempt to measure macro-financial tail risks, which permit an analysis of policy trade-offs in addressing risks to financial stability. We show three applications of our model to shed light on potential gains from policy complementarity during the aftermath of COVID-19 pandemic: first, assessing the role of financial measures and FX intervention in supporting economic recovery; second, evaluating the interactions of monetary and macroprudential policies in maintaining financial stability; third, showing roles of fiscal policy as the ELB constraint binds.

Keywords: Monetary policy; Integrated policy framework; Semi-structural model; Financial stability (search for similar items in EconPapers)
JEL-codes: C32 E37 E52 E58 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2021-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac, nep-mon and nep-sea
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