The empirical study on the puzzle of missing Phillips Curve – the evidence from Thailand

The Phillips Curve has become a heart of macroeconomics since the idea of Phillips (1958). In recent times, a number of economists express doubt as to whether this economic theory still exists in the real world, including in Thailand. This thesis investigates the existence of the Philips Curve in a context of the Thai inflation, whether it holds or breaks down and if it does break down, what are causes behind such a result. Thus, the study is carried out on the annual time series ranging from 1990 to 2017 by employing the Least Squares with HAC Consistent Covariance to ensure consistent estimates. Corresponding to continuous evolution of the theoretical frameworks of the Phillips Curve, three main model specifications are studied. First, the traditional Phillips Curve is affirmed to break down also in the Thai economy, which is in line with earlier papers. The New Keynesian Phillips Curve which contains the natural rate and the individual behavior, in contrast, holds true for Thailand. In the same way, the full-form of Phillips Curve which takes the other 3 global factors into account is found to be valid and more realistic for the Thai’s economy. Moreover, the structural breakpoint test together with the study of 2 separate sub-samples approves of the presence of the breaks in 1999 and 2000. This means the Phillips Curve is statistically valid for describing the Thai inflation only in some cases and sub-samples. Among them, the most credible case is when the headline CPI inflation is explained by the full-form of Phillips Curve during 2000 to 2017, the period after the Asian financial crisis. Further, the most consistent results obtained from both of the full-sample and the sub-samples are Thai people are backward-looking rather than forward-looking. The oil price growth is a crucial global factor influencing the Thai inflation and a financial crisis is important when it directly affect domestic prices. After all, the most noteworthy result is that my results are sensitive to a choice of inflation measurements and economic-driving variable, e.g. unemployment slack or output gap.