| Abstract | The prosperity of the Thai Economy, with double-digit growth rate in recent years, has
inevitably fuelled the speculative bubble. The effects of speculation in the economic system, to name
a few, are; rocketing real estate prices, boom and burst of stock market, widespread illegal financial
cycle or shares. A generic model reflecting a country's macroeconomy and the underlying behaviors
of speculative bubble was built. Five salient macroeconomic models, namely, multiplier-accelerator,
aggregate supply-aggregate demand, IS-LM, general equilibrium theory, and inventory adjustment
were combined into one model with some modification to represent Thailand's macroeconomy. The
resource allocation and self-reinforcement speculation process completed the speculation submodel.
The model's validity was investigated through an IS-LM framework. Monetary policy and fiscal
policy are two stimulus parameters. Behavior of model are also learned from these two policies.
Basic run was constructed after confidence was built in the model through validity experiments, the
consistency of model pattern to the theory's one. A diminishing long term investment, caused by
speculative activities, prevailed, and eventually, collapsed the country's economy. Seven common
policies were tested through simulation to curtail such phenomena. They are; 1) increasing government spending, 2) raising interest rate, 3) tightening monetary supply, 4) reducing taxation, 5)
encouraging foreign investment, 6) taxing speculation activities, and 7) subsidizing capital
investment. The combination of policy 2, 4, 6, and 7 was found to be the most beneficial policy,
within the assumptions made in the model, to sustain a healthy economic growth. |