POLICY SHOCK REACTIONS IN THAI WAGE RIGIDITY ECONOMY
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This study analyzes the macroeconomic effects of nominal wage rigidity in Thailand, a key labor market friction that shapes business cycles and policy transmission. It quantitatively evaluates how varying degrees of wage stickiness influence the dynamic responses of macroeconomic variables to such shocks. A Dynamic Stochastic General Equilibrium (DSGE) model was developed and estimated using Thai quarterly data from 2002–2021, and then subjected to consumption, technology, fiscal, and monetary policy shocks under different wage rigidity scenarios. The simulations reveal that higher nominal wage rigidity reduces the volatility of macroeconomic adjustment. The impulse responses of output, employment, and prices exhibit smaller amplitudes and weaker cyclical fluctuations as wage stickiness increases. However, wage rigidity acts as a double-edged sword: it stabilizes the economy in the short run by dampening disruptive shocks but slows the return to equilibrium. This trade-off is central to policymakers, as it shapes the strength and speed of policy transmission. The study recommends that Thai authorities foster a balance between stability and flexibility through targeted social safety nets and labor market programs that cushion downturns while allowing wage adjustments to facilitate a quicker return to equilibrium.
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