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Emerging market countries have enjoyed an exceptionally favorable economic environment throughout 2004, 2005, and early 2006. In particular, accommodative U.S. monetary policy in recent years has helped create an environment of low interest rates in international capital markets. However, if world interest rates were to take a sudden upward course, this would lead to less hospitable financing conditions for emerging market countries. The purpose of this paper is to measure the effects of world interest rate shocks on real activity in Thailand. The analysis incorporates balance sheet related credit market frictions into the IMF’s Global Economy Model (GEM) and finds that Thailand would best minimize the adverse effects of rising world interest rates if it were to follow a flexible exchange rate regime.

Business cycles -- Thailand -- Econometric models. --- Electronic books. -- local. --- Foreign exchange rates -- Thailand -- Econometric models. --- Interest rates -- Thailand -- Econometric models. --- Business & Economics --- Economic Theory --- Business cycles --- Foreign exchange rates --- Interest rates --- Econometric models. --- Money market rates --- Rate of interest --- Rates, Interest --- Exchange rates --- Fixed exchange rates --- Flexible exchange rates --- Floating exchange rates --- Fluctuating exchange rates --- Foreign exchange --- Rates of exchange --- Economic cycles --- Economic fluctuations --- Rates --- Interest --- Cycles --- Accounting --- Banks and Banking --- Finance: General --- Foreign Exchange --- Public Administration --- Public Sector Accounting and Audits --- Interest Rates: Determination, Term Structure, and Effects --- General Financial Markets: General (includes Measurement and Data) --- Currency --- Finance --- Financial reporting, financial statements --- Exchange rate arrangements --- Financial statements --- Exchange rate flexibility --- Real interest rates --- Emerging and frontier financial markets --- Finance, Public --- Financial services industry --- United States