The Phillips curve in Thailand¤

The subject of this paper is the estimation of the Phillips curve in Thailand. The aim of the estimation is to ...t the Phillips curve as part of a small-scale, log-linearised structural model for the country, which is suitable to form the basis for a future simulation exercise to ...nd an optimum monetary policy rule. A linear form of the Phillips curve is estimated using ordinary least squares estimation (OLS) under two de...nitions of the rate of in‡ation (a quarterly rate and an annual rate.) The estimation shows that in‡ation dynamics in Thailand is strongly backward-looking, with the e¤ect of output gap and import price in‡ation being surprisingly small for such a small, open economy. The results also suggest the hypothesis that the Phillips curve relationship emerged in Thailand only after the onset of the Asian crisis. This is an interesting hypothesis for further investigation, because there is no a priori reason why the relationship should emerge only after such a strong structural shock to the country’s productive capacity and its ...nancial sector. Further critical discussion on the empirical ...ndings might enable us to question the usefulness of the Bank of Thailand’s in‡ation targeting regime and to question the policy rule currently in use.