Monetary and Fiscal Policies on Inflation: Evidence From Precrisis and Post-Crisis Periods in Thailand

Abstract

The purpose of this study is to examine the long-run relationship monetary and fiscal policy on inflation in Thailand by employing an Autoregressive Distributed Lag (ARDL). This study uses quarterly data from 1980: Q1 to 2017:Q1 and divides the sample data into pre-crisis period (1980Q1-1997Q3) and post crisis period (1997Q4-2017Q1). The results revealed that the longrun relationship between government spending and inflation was positive. The results implied that government spending was one of the important components when determining the inflation. However, interest rate was positive in pre-crisis and negative in post-crisis. The results indicated that monetary policy is more effective on inflation in the post-crisis period. Both pre-crisis and post-crisis period show that fiscal policy is more effective in influencing the inflation in Thailand. These results suggest that inflation in Thailand inflation is highly sensitive to the change in monetary and fiscal policies, especially as it emerges from a financial crisis.