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Bulletin of Monetary Economics and Banking

Document Type

Article

Abstract

This paper examines the effects of trend inflation on the conduct of monetary policy during moderate and low inflation environments in Thailand. It extends the New Keynesian model by introducing a positive trend inflation. It finds that the response of inflation and output are lower during the moderate inflation period. A high level of trend inflation magnifies the welfare loss. The optimal policy is to lower weight on output volatility when the target level for inflation is higher. To adjust the inflation targeting rate, the central bank should consider the response of inflation and output gap to preserve the determinacy.

First Page

445

Last Page

468

Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Thailand

Affiliation

Chulalongkorn University

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