TITLE:
Instability of Money Demand: Recent Evidence for Thailand
AUTHORS:
Komain Jiranyakul, Timothy P. Opiela
KEYWORDS:
Real Money Demand, Real Income, Interest Rate, Cointegration
JOURNAL NAME:
Modern Economy,
Vol.5 No.8,
July
24,
2014
ABSTRACT: This study examines the
short-run and long-run stability properties of money demand in Thailand using
the monetary aggregates M1, M2 and M3, for the period from 1993Q1 to 2012Q4. We
use the dynamic OLS specification of Stock and Watson (1993) and Ball (2001),
and the estimation technique of the Johansen cointegration test to determine
the stability of money demand. The results from the Johansen cointegration test
reveal that there is only a long-run relationship between M1 money demand and
real GDP (a proxy for real income) and interest rate. In the short run, only a
change in real GDP affects M1 money holdings. In the long-run both real GDP and
an interest rate determine money demand. The short-run instability of M1 money
demand makes it difficult for the monetary authorities to use M1 as an
intermediate target to control intermediate-run and long-run inflation.