A Macroeconometric Model For Thailand With Welfare Linkages: Analyses Of Selected Policies In Response To Energy Price Increases

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This dissertation uses the data from 1993 to 2004 to demonstrate the effects of the increase in petroleum price on the general economy of Thailand and their linkage with aspects of welfare. It also evaluates the effectiveness of the counterfactual policy responses. The evaluation is done using a macroeconometric model in which the data are first incorporated into a system of simultaneous equations. Then a policy or a combination of policies is simulated for each scenario. Charts of the results of the variables simulated in each scenario are analyzed. There are seven chapters in this dissertation. Chapter One begins with an introduction that discusses why an increase in the price of crude oil concerns not only an individual country but also the world as a whole, and then turns to the counterfactual policies proposed by this dissertation. The important scenarios of price surge in the past and the recent price situation are briefly discussed. Because the recent cases of price increase have different causes from those of the past, the shifts in the demand and the supply curves of both cost-push and demand-pull inflation as well as the dynamic movements of aggregate demand and supply are explained. This discussion is followed by an explanation of how the mechanism of an increase in the price of oil can lead to a change in welfare. Thailand's recent economic situation, including the years before, during, and after the era of the Asian financial crisis (1985-2006) is presented. The chapter also briefly discusses the data of the nation's gross domestic product, consumer price index (CPI), and current account balance during the 1970s price surge. (This brief discussion reflects a suspicion that changes in these variables had been affected by changes in crude oil prices.) The chapter concludes with the discussions of Thailand's oil price structure and its oil fund program, an influential tool that the government has been using as an immediate policy response. Chapter Two surveys the literature in two main categories: The first category is the macroeconometric models of various countries, and the second is the impact of changes in oil prices as determined by different modeling methods. Chapter Three explains the details of the macroeconometric framework that serves as the core model of the dissertation. This chapter also discusses the construction and the history of the core model, which is based on a supply and demand concept, as well as the advantages and disadvantages of the model. Chapter Four presents the general economy block that is composed of the blocks for aggregate demand (C,I), trade (X, M), production (total output), and price (PGDP and CPI), all of which served as a core model. Chapter Five presents the energy, fiscal, and welfare blocks. Chapters Four and Five together explain the fundamental theories in building the overall structure and also present each dependent variable as a function of other variables. Finally, the relationships among the variables within a system or a block are demonstrated by a flowchart. With a predefined set of explanatory variables for each dependent variable, each equation and ex-post simulation was calibrated using EVIEWS 6.0. The results of the coefficients, the fitted graphs, and the mean absolute percentage error (MAPE) are shown in Appendix C. The results of the baseline simulations, which are the attempts to match the model with actual data, can be found in Appendix D. Chapter Six presents the results of the seven simulated scenarios. These scenarios include the impact of the world oil price increase (Scenario 1); the use of the oil fund as a counterfactual policy response when the world crude oil price increased by 50% (Scenario 2); the use of the oil fund when the world crude oil price increased by 200% (Scenario 3); the use of a tax reduction when the world crude oil price increased by 50% (Scenario 4); the impact of a reduction in the sales of automobiles (Scenario 5); the impact of the monetary policy response (Scenario 6); and the impact of the fiscal policy response in addition to the monetary policy response (Scenario 7). The results show that the world crude oil price increase is followed by a decline in almost every variable, among which investment presents the greatest decline. When the price of the world crude oil increases by 50%, a 1.2 bath/liter subsidy from the oil fund or a 35% tax cut is needed to stabilize the economy. However, when the crude oil price increases by 200%, a 2.5 bath/liter subsidy from the oil fund is needed. A reduction in automobile sales shows only a few percent reduction in the usage of diesel as well as a very small reduction in the total number of automobiles. Finally, a rising interest rate in response to the rising price level indeed worsens the overall economy, and increasing government expenditures significantly helps only some variables such as unemployment. Chapter Seven concludes the dissertation.

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macroeconometric model; thailand; energy price


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Azis, Iwan Jaya

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Turnquist, Mark Alan
Donaghy, Kieran Patrick

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Regional Science

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Ph. D., Regional Science

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Doctor of Philosophy

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