Financial Instability, Banking Crisis, and Growth Volatility in Thailand: An Investigation of Bi-Directional Relationship
Thailand has undergone several economic shocks transmitted from outside the country. A reasonable degree of macroeconomic stability in many critical aspects was implemented during that period. A time-series econometrics is examined to investigate the causal links of financial instability and different sources of volatility to macroeconomic instability and probability of economic downturn. The estimated results show that financial instability and probability of banking crisis are relatively more determined from the volatility in trade openness, and less determined from the price related volatility. In addition, variables related to financial system development seem to be crucial factors in maintaining the stability of the financial sector. The estimated coefficients also indicate that better financial system development should also help stabilize growth volatility and decrease the probability of economic downturn. In addition, we also conclude that price variability does not have strong effects on growth volatility and economic downturn.