Monetary policy, structural break and the monetary transmission mechanism in Thailand

The paper studies monetary policy and the monetary transmission mechanism in Thailand in light of the Asian crisis in 1997. Existing studies that adopt structural VAR approaches do not give a clear and agreed-upon view how monetary shocks are transmitted to the Thai economy that is subject to structural breaks. In our study, we explicitly model a pre-crisis and post-crisis cointegrated VAR model. We support the arguments of Corbett and Vines [Corbett, J., & Vines, D. (1999). Asian currency and financial crises: Lessons from vulnerability, crisis and collapse. The World Economy, 22(2), 155-177] as well as Phongpaichit and Baker [Phongpaichit, P., & Baker, C. (2002). Thailand: Economy and politics (2nd ed.). Oxford: Oxford University Press] that the trinity of open capital markets, pegged exchange rate regime and monetary policy autonomy is inconsistent in the pre-crisis period. In contrast, the model points to an effective monetary policy in the post-crisis period. Further, we analyse the common driving trends of the model.