Essays on examining monetary policy in emerging countries

This dissertation consists of three essays, which provides insights into monetary policy of emerging countries in various aspects. The first essay thoroughly investigates how the central banks in two emerging countries; Korea and Thailand, respond to economic fluctuations and observe whether their monetary policies have comparable effects on the economies. Carefully taken into account of time-series properties and the regression stability, many econometric tests are applied and the fully modified OLS with the block bootstrap is performed on their monetary policy rules to get unbiased estimation. The evidence indicates the differences of monetary policy between pre- and post-crisis and suggests that although both countries have similar economic conditions and announce the same monetary policy, the degree on stabilizing the economy in each country using the interest rate instrument is noticeably different. The second essay examines if New Keynesian type model, which is recently popular in explaining many developed economies, can as well explain an emerging economy such as Thailand in this case. The evidence suggests that simulating a New Keynesian small open economy model can capture some characteristics of Thai monetary data where their volatilities are close to volatilities of actual data, but only when the central bank is assumed to follows the Taylor rule that incorporates interest rate smoothing policy. However, comparing with the structural VAR model, the simulated model may not generate the correct size of impulse responses for Thai economy. Even so, impulse responses from both models support the implementation of explicit inflation targeting in Thailand. The last essay examines if emerging countries that implement inflation targeting are constrained by fiscal policy since these countries adopt inflation targeting recently without verifying the independence of their central banks. We observe that the interest rate setting process in inflation targeting emerging countries are not influenced by fiscal policy, and also find that the interest rate setting process of these countries are clearly different from the process of emerging countries that do not adopt inflation targeting, while it is similar to the process of industrial countries that also adopt inflation targeting.