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The role of interest rates in business cycle fluctuations in emerging countries: The case of Thailand
- Source: Asia-Pacific Development Journal, Volume 13, Issue 1, Oct 2006, p. 53 - 73
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- 06 Oct 2006
Abstract
Emerging economies have enjoyed an exceptionally favourable economic and financing environment throughout 2004 and 2005, supported by solid global growth, low interest rates and suppressed credit spreads. The easy-money policy of the United States of America in recent years has spread worldwide, creating an environment of low interest rates in international markets. If global interest rates were to take a sudden course upward, this would increase the cost of borrowing for emerging economies and lead to less hospitable financing conditions for emerging markets. The purpose of this paper is to measure the effect of shocks on global interest rates on real activity in Thailand. The analysis employs the Global Economy Model developed by the Research Department of the International Monetary Fund and finds that it would be best for Thailand to minimize the effects of rising global interest rates if it were to follow a flexible exchange rate policy.