The Role of Interest Rates in Business Cycle Fluctuations in Emerging Market Countries: The Case of Thailand

24 Pages Posted: 21 Jun 2006

See all articles by Ivan Tchakarov

Ivan Tchakarov

International Monetary Fund (IMF) - Asia and Pacific Department

Selim Ali Elekdag

International Monetary Fund (IMF) - Policy Development and Review Department

Date Written: May 2006

Abstract

Emerging market countries have enjoyed an exceptionally favorable economic environment throughout 2004, 2005, and early 2006. In particular, accommodative U.S. monetary policy in recent years has helped create an environment of low interest rates in international capital markets. However, if world interest rates were to take a sudden upward course, this would lead to less hospitable financing conditions for emerging market countries. The purpose of this paper is to measure the effects of world interest rate shocks on real activity in Thailand. The analysis incorporates balance sheet related credit market frictions into the IMF's Global Economy Model (GEM) and finds that Thailand would best minimize the adverse effects of rising world interest rates if it were to follow a flexible exchange rate regime.

Keywords: Exchange rate regimes, Global Economy Model (GEM), financial accelerator, balance sheets, Thailand

JEL Classification: F41, F42

Suggested Citation

Tchakarov, Ivan and Elekdag, Selim Ali, The Role of Interest Rates in Business Cycle Fluctuations in Emerging Market Countries: The Case of Thailand (May 2006). IMF Working Paper No. 06/110, Available at SSRN: https://ssrn.com/abstract=910675

Ivan Tchakarov (Contact Author)

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Selim Ali Elekdag

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States