Inflation Expectations and Monetary Policy in Thailand

Pongsak Luangaram, Yuthana Sethapramote and Chutiorn Tontivanichanon

No 3, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: This paper examines the relationship between inflation expectations and monetary policy in Thailand. The forward-looking Taylor rule is applied to measure monetary policy actions. Inflation expectations extracted from the yield curves are used. Our results provide two key findings. First, we find econometric evidence that inflation expectations react to monetary policy actions. A tighter monetary policy can curb expected inflation not only for short-term expectations but also for long-term expectations. These results are valid for both the reducedform single-equation and the structural-form system-of-equations estimation. Second, the monetary policy stance as measured by the residuals from the forward-looking Taylor rule is able to capture the relationship between monetary policy and inflation expectations better than the outcome-based policy rule. These results may explain the weak evidence in previous studies of the relationship between inflation expectation and monetary policy.

Keywords: Monetary policy in Thailand; Inflation expectations; Yield curve; Taylor rule (search for similar items in EconPapers)
JEL-codes: C36 E43 E52 E58 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2015-09
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