Monetary Policy Analysis under Headline and Core Inflation Targeting in Thailand
Keywords:
Monetary Policy, Inflation targeting, ThailandAbstract
This paper analyzes monetary policy in Thailand under core and headline inflation targeting regimes by using a small open economy DSGE model. The model, modified from Adolfson (2007), is based on the New Keynesian framework. We assume incomplete exchange rate pass-through. The results are estimated using Bayesian inference for 2001Q1 to 2015Q4. Our key finding is that the headline inflation targeting regime performs better than the core inflation targeting regime in terms of lower welfare losses. Intuitively, under the headline inflation targeting regime, the exchange rate channel will be more effective, which leads to a decrease in the degree of policy trade-off. In addition, we find no concrete conclusion regarding whether the Bank of Thailand can improve welfare by adjusting the policy rate in response to real exchange rate movements.
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