A Study on the Spillover Effects of China’s Monetary Policy on Thailand and the Belt and Road Initiative

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Project Title: A Study on the Spillover Effects of China’s Monetary Policy on Thailand and the Belt and Road Initiative
Author: Ms. Zhu Zhi
Advisor: Associate Professor Dr. Qiu Chao
Degree: Master of Business Administration
Major: Business Administration
Faculty: Graduate Schools
Academic year: 2020


Conference Proceedings
National and International Academic Conference “Innovation and Management for Sustainability” 9-10 July 2020


Zhu, Zhi. (2020). A study on the spillover effects of China’s monetary policy on Thailand and the belt and road initiative. (Independent study, Master of Business Administration). Bangkok: Siam University.


This study provides research on the spillover effects of China’s quantitative and price-based monetary policies on Thailand under the ‘Belt and Road’ initiative between the two countries. This research established the SVAR model using the Impulse Response Function (IRF) and variance decomposition of this initiative. This case study analyzed China’s quantitative monetary policy’s spillover effect and deduced the following conclusions: 1. If Thailand does not adjust the monetary policy, within a short term of three months after China increases its money supply, the output of Thailand will decrease, their GDP growth would also slow down, and their overall economic position would shrink due to the negative impacts. From a long-term point of view, a positive influence would be dependent on the output of Thailand; 2. Overall, the expansion of China’s money supply would negatively influence Thailand’s relative exchange rate, leading to a decrease in the exchange rate and currency revaluation.; however, a positive influence would be identified in later stages; 3. As China raises its money supply, Thailand’s inflation rate would first drop and then continue to rise; 4. China’s rising money supply on Thailand’s interest rate would have a negative impact, and could only recover after three years. Objectively, this research also looked at China’s price-based monetary policy’s spillover effect and determined the following: 1. From the output perspective, a rise in the benchmark of the one-year deposit rate in China would negatively influence Thailand’s output within three years. The latter’s GDP growth rate and output would both decrease, and in three years, the GDP growth rate and output of Thailand would rebound and begin to grow and show a positive spillover effect; 2. From the perspective of the exchange rate, the effects vary by showing a negative influence on Thailand’s exchange rate in the short term. The exchange rate would go down, but not significantly. The explanation of a further decrease of the exchange rate in the later stages that Thai authorities would adopt some measures to avoid significant fluctuation of the exchange rate by lowering the money supply to reevaluate the Thai Baht and keep a lower relative exchange rate; 3. From the perspective of inflation, in the short-term, a rise in China’s interest rate, a withdrawal of foreign capitals, and the devaluation of Thai Baht would increase inflation. From a mid-to-long-term view, China’s tight monetary policy would influence output, and commodity prices would fall, resulting in the sinking of commodity prices in Thailand and influencing the inflation rate; 4. From the perspective of interest rate, in the short-term, Thailand’s interest rate would rise due to positive influence; however, in the long-term, the influence would shift into the negative and witness a fall of the interest rate.

Keywords: Monetary policy, Spillover effects, Belt and road initiative.

A Study on the Spillover Effects of China’s Monetary Policy on Thailand and the Belt and Road Initiative

Master of Business Administration (International Program), Siam University, Bangkok, Thailand


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