Impacts of Quantitative Easing Policy of United States of America on Thai Economy by MS-SFABVAR

Abstract

This paper provides new empirical evidences by combining the advantage of principal component analysis (PCA) with Markov-switching Bayesian VAR (MS-BVAR) to examine the durations and impacts of quantitative easing (QE) policy on the Thai economy. The results claimed that QE policy created monetary shock to the Thai economy around 4–5 months in each cycle before getting back to equilibrium. The result from foreign direct investment (FDI) was similar to foreign portfolio investment (FPI) channel that when QE was announced, excess capital stocks were injected into the emerging economies, including the Thailand stock market. Excess liquidity as a result of the QE policy pushed up the SET index of Thailand to reach the highest point in 2012. The booming stock market generated more real output (GDP), and greater levels of employment, private consumption, and policy interest rates. Also, it produced shocks for just 4–5 months for one cycle of QE. On the other hand, excess liquidity from QE caused the Thai Baht to appreciate significantly, and this affected Thailand’s trade balance negatively. Impulse response and filtered probability yielded similar results that the QE had the impact on the Thai economy seasonally, and that the impact was around 4–5 months in each cycle.