• Tiada Hasil Ditemukan

Interpretations of Coefficients in Full Sample

CHAPTER 4: RESULTS AND INTERPRETATIONS

4.2 Parameter Estimates and Statistics of Variables

4.2.1 Interpretations of Coefficients in Full Sample

This section is based on the results obtained from Matrix C (Table 4.2.3).

It shows that there are some arguments and inconsistency against most of the researchers. Further explanations are as below.

4.2.1.1 Institutional Quality Shocks on Real Gross Domestic Product

Olabberia and Rigolini (2012) suggested that improvements in institutional quality may foster economic stability and further reduce output volatility growth. However the results we obtained in Matrix C is inconsistent with most of the researchers. The impact of institutional quality shocks on Thailand’s real gross domestic product (RGDP) turns out to be negative.

Our results imply that it is not proven corruption is bad for a country’s overall welfare. Different types of corruption differently affect economic development. Under rigid regulation and inefficient bureaucracy, corruption might foster economic growth. Our results suggest that corruption is positively correlated with RGDP growth and capital accumulation in countries with poor institutions.

4.2.1.2 Oil Price Shocks on Real Gross Domestic Product

According to the economic theory, an oil price increase will have adverse effects on economic growth, especially on an oil importing country (Abeysinghe, 2001). As Thailand is net oil importing country, our finding is consistent with the previous researchers. Our result shows that oil price shocks tend to be negatively correlated with the RGDP in Thailand.

The rationale behind this finding is straightforward. As oil is a basic input for production, when its price rises, it causes production costs to rise at the same time. As the result, the producer will cut down on the outputs or price the products at a higher price, which resulting in a lower consumption. The combination effect of these situations is the lower economic activities or negative economic growth. Further analysis is required to breakdown the actual impact of oil price shock on RGDP.

4.2.1.3 Institutional Quality Shocks, Oil Price Shocks and Real Gross Domestic Shocks on Inflation

It is found that institutional quality shocks did not play an important role in affecting inflation. However, oil price shocks affects inflation negatively, which is in contrast with most of the previous researchers. Our result shows a small magnitude of effect on inflation by oil price. When oil price increases by 10 percent, inflation decreases by 0.14 percent which is actually suggesting a small magnitude. We suspect that the inflated oil price is absorbed by the policy makers and producers instead of the consumers. Thailand government has been subsidizing on the imported crude oil, which helps minimizing the negative impact of increasing oil price on consumer welfare. In the short run, oil prices-consumer prices relationship is seen to be limited, however, this relationship appears to be more significant when oil price shocks are defined in local currencies (Rafiz, Salim & Bloch, 2009). In our studies oil price is priced in USD instead of Thai Baht, which might explain the minimal magnitude of the finding. However, further research is required to study the impact of oil price on business cost and government spending.

4.2.1.4 Real Gross Domestic Product Shocks and Inflation Shocks on Monetary Policy

Most of the researchers had found that a risen RGDP can spark inflation.

In order to cool down the overheated economy, policy makers would increase the interest rate. At the same time, an overheated economy usually resulting in increasing inflation. Our results show that interest rate responds positively to the changes of RGDP but negatively to inflation.

Hence, we would suggest that the relationship between interest rate and RGDP is consistent with the previous studies. However, contradiction is shown in the relationship between interest rate and inflation. When an economy is deemed to be overheated and unsustainable by the country, the

policy makers will increase the interest rate. The rationale is easy and straightforward. When the interest rate is increased, the producer and business will face a higher lending rate, which result in lower business activities. At the same time, the consumer will spend less and save more of their monies due to the higher saving rate. However, the producers usually response slower to the changes in interest rate due to their illiquid capital.

Hence, the interest rate increases according to the economic growth as the economic does not response to the changes in interest rate immediately.

The unusual relationship between interest rate and inflation can be explained by the implementation of inflation targeting framework by the Bank of Thailand (BOT). Since May 2000, the BOT has been conducting monetary policy under a flexible inflation targeting framework. Under the inflation targeting scheme, the policy maker will be prompted to adjust the interest rate if the forecasted inflation rate deviates from the target level. If the expected inflation rate is less than the target inflation, the policy maker will decrease the policy rate, hence heating up the economic activities, which in turns increase the inflation rate. The leads to higher inflation rate and bring the inflation rate closer to the target rate (Kose et al., 2012). This explains the negative relationship between interest rate and inflation rate in Thailand.

4.2.2 Interpretations of Coefficients in Sub-Sample 1 and