Thai Monetary Policy Under the Inflation Targeting Regime

New Keynesian ◽

Keynesian Model ◽

Trend Inflation ◽

Abstract This paper explores the macroeconomic effects of inflation targeting in Thailand. Furthermore, this study uses a nonlinear new Keynesian model under the dynamic stochastic general equilibrium framework with price indexation to analyze the monetary policy under inflation targeting in Thailand. The model is estimated using a Bayesian statistic for the Thai economy. It shows that inflation is more stabilized and inflation persistence has fallen after adopting inflation targeting. The paper also indicates that the Bank of Thailand is more responsive to the deviation of inflation from its target using inflation targeting. The key monetary mechanism exists through changes in the real interest rate which affect aggregate demand. It is worth noting that the larger the inflation targeting rate is, the lower the steady state output from its steady state level given no trend inflation.

INNOVATION, GROWTH, AND OPTIMAL MONETARY POLICY

10.1017/s1365100519000610 ◽

2019 ◽

pp. 1-24

Author(s):

Barbara Annicchiarico ◽

Alessandra Pelloni

Keyword(s):

Monetary Policy ◽

Inflation Targeting ◽

Public Spending ◽

New Keynesian ◽

Positive Trend ◽

Policy Recommendation ◽

Optimal Monetary Policy ◽

Keynesian Model ◽

Trend Inflation ◽

Short Run

This paper examines how innovation-led growth affects optimal monetary policy. We consider the Ramsey policy in a New Keynesian model where R&D leads to an expanding variety of intermediate goods and compare the results with those obtained when the expansion occurs exogenously. Positive trend inflation is found to be optimal under both assumptions, but much higher with profit-seeking innovation. Optimal monetary policy must be counter-cyclical in response to both technology and public spending shocks, yet the intensity of the reaction crucially depends on the presence of an R&D sector. However, the small amount of short-run deviations of prices from the non-zero trend inflation observed in response to shocks suggests inflation targeting as a robust policy recommendation.

THE SIGNAL EXTRACTION PROBLEM REVISITED: A NOTE ON ITS IMPACT ON A MODEL OF MONETARY POLICY

10.1017/s1365100509090294 ◽

2009 ◽

Vol 14 (3) ◽

pp. 405-426 ◽

Cited By ~ 3

Author(s):

Benjamin D. Keen

Keyword(s):

Monetary Policy ◽

Imperfect Information ◽

New Keynesian ◽

Policy Changes ◽

Keynesian Model ◽

Dynamic Stochastic ◽

Monetary Policy Shock ◽

Future Policy ◽

Sticky Wages

This paper develops a dynamic stochastic general equilibrium (DSGE) model with sticky prices and sticky wages, in which agents have imperfect information on the stance and direction of monetary policy. Agents respond by using Kalman filtering to unravel persistent and temporary monetary policy changes in order to form optimal forecasts of future policy actions. Our results show that a New Keynesian model with imperfect information and real rigidities can account for several key effects of an expansionary monetary policy shock: the hump-shaped increase in output, the delayed and gradual rise in inflation, and the fall in the nominal interest rate.

TREND INFLATION AND MONETARY POLICY IN EASTERN EUROPE

10.1017/s1365100517000372 ◽

2017 ◽

Vol 23 (4) ◽

pp. 1649-1663

Author(s):

Monika Junicke

Keyword(s):

Monetary Policy ◽

Transition Economies ◽

Inflation Targeting ◽

Price Index ◽

Consumer Price Index ◽

Producer Price ◽

Trend Inflation ◽

Theoretical Predictions ◽

Dynamic Stochastic ◽

Eastern European Countries

I use a two-country dynamic stochastic general equilibrium (DSGE) model with a nonzero steady-state inflation to study monetary policy in transition economies. In particular, my analysis focuses on whether inflation targeting is based on a consumer price index (CPI) or its producer counterpart, producer price index (PPI). This issue is specifically relevant for transition economies as they might be subject to Balassa–Samuelson effects arising from trading in international markets. Under these circumstances, domestic inflation is possibly higher than imported inflation, hence targeting PPI inflation may prove more effective in influencing domestic macroeconomic variables than targeting CPI inflation. Using a Bayesian methodology, I find that the central banks of three Eastern European countries (namely, the Czech Republic, Hungary, and Poland) are likely to target PPI inflation rather than CPI inflation. This result is in line with the theoretical predictions in the literature, and is robust across several Taylor-type rules.

On the Validity of the Theoretical Bases of Inflation Targeting and New Keynesian General Equilibrium Models

Voprosy Ekonomiki ◽

10.32609/0042-8736-2012-5-22-36 ◽

2012 ◽

pp. 22-36

Author(s):

J. Plushchevskaya

Keyword(s):

General Equilibrium ◽

Inflation Targeting ◽

New Keynesian ◽

Equilibrium Models ◽

Macroeconomic Policies ◽

Policy Regime ◽

General Equilibrium Models ◽

Developed Economies ◽

The latest world economic and financial crisis highlighted problems in macroeconomic policies pursued by developed economies as well as the necessity of searching for an effective regulatory framework. In particular, doubts have occurred in the indisputability of advantages of inflation targeting and its theoretical basis: the New Keynesian dynamic stochastic general equilibrium models. The reason for doubts lies mainly in the lack of confidence in the new neoclassical synthesis propositions which form the basis for the modern monetary theory and structural modelling. The article reveals close links between contemporary mainstream economics, inflation targeting and New Keynesian dynamic stochastic general equilibrium models, concentrates on controversial points of the theory which bring into question applicability of the monetary policy regime and the models, and finally, outlines further research agenda.

Inclusion of Asset Prices: An Argument for Monetary Policy and the Phillips Curve

Applied Economics Quarterly ◽

10.3790/aeq.64.3.239 ◽

2018 ◽

Vol 64 (3) ◽

pp. 239-252

Author(s):

Alexander Mislin

Keyword(s):

Monetary Policy ◽

Asset Prices ◽

Price Index ◽

Phillips Curve ◽

House Prices ◽

Optimization Procedure ◽

New Keynesian ◽

Keynesian Model ◽

Consumer Prices ◽

Abstract This article develops an augmented price index that includes house prices, so that the relationship between inflation and unemployment levels in the traditional Phillips curve can be better represented. This general price index may be considered complementary to the Harmonised Index of Consumer Prices (HICP) and establishes the model-theoretical basis for a new-Keynesian model that derives the conditions for a monetary policy rule in a dynamic stochastic optimization procedure. Based on a simple stochastic differential equation for augmented inflation, we show that the reaction of the central bank depends on the marginal effects on augmented inflation and the output gap of an infinitesimal change in asset prices. This analysis could be interpreted as a way of using asset prices for a general price index, being an adequate method to restore monetary credibility. JEL classifications: E52, E58, G10 Keywords: monetary policy, asset prices, Phillips curve

Optimal Forward Guidance

American Economic Journal Macroeconomics ◽

10.1257/mac.20170335 ◽

2019 ◽

Vol 11 (4) ◽

pp. 310-345 ◽

Cited By ~ 1

Author(s):

Florin O. Bilbiie

Keyword(s):

Interest Rates ◽

Bad News ◽

New Keynesian ◽

Simple Rule ◽

New Keynesian Model ◽

Liquidity Trap ◽

Forward Guidance ◽

Keynesian Model ◽

Optimal forward guidance is the simple policy of keeping interest rates low for some optimally determined number of periods after the liquidity trap ends and moving to normal-times optimal policy thereafter. I solve for the optimal duration in closed form in a new Keynesian model and show that it is close to fully optimal Ramsey policy. The simple rule “announce a duration of half of the trap’s duration times the disruption” is a good approximation, including in a medium-scale dynamic stochastic general equilibrium (DSGE) model. By anchoring expectations of Delphic agents (who mistake commitment for bad news), the simple rule is also often welfare-preferable to Odyssean commitment. (JEL D84, E12, E43, E52, E56)

The Macroeconomics of Trend Inflation

Journal of Economic Literature ◽

10.1257/jel.52.3.679 ◽

2014 ◽

Vol 52 (3) ◽

pp. 679-739 ◽

Cited By ~ 85

Author(s):

Guido Ascari ◽

Argia M. Sbordone

Keyword(s):

Monetary Policy ◽

Lower Bound ◽

New Keynesian ◽

Inflation Expectations ◽

Positive Trend ◽

Zero Lower Bound ◽

Keynesian Model ◽

Long Run ◽

Trend Inflation ◽

Inflation Targets

Most macroeconomic models for monetary policy analysis are approximated around a zero inflation steady state, but most central banks target an inflation rate of about 2 percent. Many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound constraint on monetary policy. In this survey, we show that the conduct of monetary policy should be analyzed by appropriately accounting for the positive trend inflation targeted by policymakers. We first review empirical research on the evolution and dynamics of U.S. trend inflation and some proposed new measures to assess the volatility and persistence of trend-based inflation gaps. We then construct a Generalized New Keynesian model that accounts for a positive trend inflation. In this model, an increase in trend inflation is associated with a more volatile and unstable economy and tends to destabilize inflation expectations. This analysis offers a note of caution regarding recent proposals to address the existing zero lower bound problem by raising the long-run inflation target. (JEL E12, E31, E32, E52, E58)

Effects of trend inflation on monetary policy and fiscal policy shocks in Vietnam

Journal of Economics and Development ◽

10.1108/jed-04-2021-0052 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Le Thanh Ha ◽

Finch Nigel

Keyword(s):

Monetary Policy ◽

Fiscal Policy ◽

Money Supply ◽

New Keynesian ◽

Method Of Moment ◽

Content Type ◽

Keynesian Model ◽

Trend Inflation ◽

Policy Shocks ◽

The Government

PurposeThis paper analyzes variations in effects of monetary and fiscal shocks on responses of macroeconomic variables, determinacy region and welfare costs due to changes in trend inflation.Design/methodology/approachThe authors develops the New-Keynesian model, which the central banks can employ either nominal interest rate (IR rule) or money supply (MS rule) to conduct monetary policies. They also use their budgets for capital and recurrent spending to conduct fiscal policies. By using simulated method of moment (SMM) for parameter estimation, the authors characterize Vietnam's economy during 1996Q1 -2015Q1.FindingsThe results report that consequences of monetary policy and fiscal policy shocks become more serious if there is a rise in trend inflation. Furthermore, the money supply might not be an effective instrument and using the government budget for recurrent spending produces severe consequences in the high-trend-inflation economy.Originality/valueThis is the first paper that examines the effects of trend inflation on the monetary and fiscal policy implementation in the case of Vietnam.

Monetary policy and exchange rate regime in tourist islands

Tourism Economics ◽

10.1177/1354816620959496 ◽

2020 ◽

pp. 135481662095949

Author(s):

Federico Inchausti-Sintes ◽

Ubay Pérez-Granja

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Inflation Targeting ◽

Exchange Rate Regime ◽

Exchange Rate Policy ◽

Monetary Policies ◽

Rate Policy ◽

Dynamic Stochastic ◽

Travel Industry

The broad impact of the travel industry on economies has been comprehensively analysed in the tourism literature. Despite this, its consequences for monetary policy have remained unaddressed. This article aims at providing a first approach in this line for the case of three small tourist islands such as Cabo Verde, Mauritius and Seychelles. The research is based on a Bayesian estimation using a dynamic stochastic general equilibrium model (DSGE), and the optimal response to a tourism demand shock of four monetary policies is analysed. According to the results, both a conventional peg and an inflation-targeting policies achieve better economic performance. More precisely, the inflation is lower in the former. However, the rise in consumption and the gain in the external competitiveness are sharper in the latter. Finally, the other two policies, an inflation-targeting with managed exchange rate policy and an imported-inflation targeting policies, generate higher consumption and external competitiveness, but, also higher inflation and interest rate.

A NOTE ON ROBUST MONETARY POLICY AND NON-ZERO TREND INFLATION

10.1017/s1365100518000883 ◽

2018 ◽

Vol 24 (6) ◽

pp. 1574-1594 ◽

Cited By ~ 1

Author(s):

Kohei Hasui

Keyword(s):

Monetary Policy ◽

Model Uncertainty ◽

New Keynesian ◽

Macroeconomic Fluctuations ◽

Macroeconomic Variables ◽

Control Techniques ◽

Princeton University ◽

Keynesian Model ◽

Trend Inflation ◽

The One

This paper studies how model uncertainty influences economic fluctuation when trend inflation is high. We introduce Hansen and Sargent’s [(2008) Robustness, Princeton University Press] robust control techniques into a New Keynesian model with non-zero trend inflation. We reveal the following three points. First, we find that robust monetary policy responds more aggressively. This aggressiveness increases with trend inflation. Second, as the trend inflation rises, the response of macroeconomic variables is larger under robust policy. Third, stronger robustness tends to lead to indeterminate equilibrium as trend inflation increases. Consequently, the economy might be volatile when trend inflation is high due to robustness from the view of both variance and determinacy. We interpret the results as indicating that the model uncertainty might be the one of the factors causing large macroeconomic fluctuations when trend inflation is high.