Publication: Reaction function under fixed exchange rate system.
Issued Date
2007
Resource Type
Language
eng
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Mahidol University
Bibliographic Citation
NIDA Economic Review. Vol. 2, No.1 (2007), 1-9
Suggested Citation
Yingyot Chiaravutthi. Reaction function under fixed exchange rate system.. NIDA Economic Review. Vol. 2, No.1 (2007), 1-9. Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/9950
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Title
Reaction function under fixed exchange rate system.
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Abstract
The paper presents the viewpoint that the monetary policy reaction function can
be constructed when a country adopts the exchange-rate targeting. Though this
is different from a common understanding of monetary policy’s ineffectiveness,
there are a few reasons to believe that the authority still has some freedom in
conducting the policy. First, the assumption of perfect capital mobility may be
not realistic. Second, even when the authority publicly announces the pegged
rate, the promise may not always be kept. Third is when the authority employs
a sterilized intervention. To understand how the policy is actually conducted,
the reaction function is a simple approach since it shows how a central bank
uses the tools to achieve macroeconomic goals. As for the case of Thailand, the
function shows that although the Bank of Thailand announced the exchange-rate
targeting prior to 1997, the output goal was also pursued as well.