Trend Inflation In Moderate And Low Inflation Periods: The Implication Of Thai Monetary Policy

Deskripsi

This paper examines the effects of trend inflation on managing 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 enlarges the welfare loss. When the target level for inflation is higher, lower weight on output fluctuation is the optimal policy. To adjust the inflation targeting rate, the central bank should consider the response of inflation and output gap to preserve the determinacy.