Coping with a decline in world energy prices: Macroeconomic and income distribution effects in Thailand

This paper analyzes the effects of a short-run decline in world oil prices in Thailand. The outcomes of two policy responses are explored. What happens if — under a liberal policy - domestic prices follow world prices down in the short run and back up in the medium run? And what happens if — under a moderate policy - domestic prices are kept pretty much the same in both the short and medium runs? The SIAM2 Model tracked the effect of these policies on economic growth, on the resource balance, and on employment and the distribution of income. Over a 10-year horizon, growth is about the same under the two policies, though with differences for some periods and sectors. Nor is there much difference between the two policies in their effect on employment and income distribution — though the formal and informal sectors perform differently in different subperiods. The most important difference is in the resource balance. Under the liberal policy, the current account balance changes little, but it improves rapidly under the moderate policy.