Existence of J-Curve between Thailand and ASEAN: A Real Business Cycle Perspective

Abstract

Could the IRBC model repricate J-curve effect in case of Thailand with ASEAN? In order to receive the state space representation: transition and observation equation, the stochastic optimal linear regulator problem is solved. According to the main simulation results, the dynamic responses of macroeconomic cycles toward one-standard-deviation innovation indicate that in the long run the cycles converge to the steady state obviously. When the simulated value with stylized fact is compared, the overall simulation results on standard deviation statistical property are rather good. At the same time, the cross correlation between trade balance and terms of trade replicates quite well a J-curve pattern. It is, nonetheless, sensitive to variations on the parameter of elasticity of substitution between domestic and imported product. The parameterization should be developed for the future research direction. It should be country-specific for some parameters, as for instant the elasticity of substitution.