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Does Money Have a Role in Monetary Policy for Price Stability under Inflation Targeting in Thailand?

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  • Hossain, Akhand Akhtar
  • Arwatchanakarn, Popkarn

Abstract

This paper deploys Thai quarterly data for the study period 1999q1–2014q4 to econometrically investigate the proposition that money growth is an important, if not the sole, determinant of inflation under inflation targeting and that the money growth-inflation relation is not conditional on the stability of the money-demand function. The autoregressive distributed-lag (ARDL) bounds-testing results suggest that, across the study period, the Thai money stock (narrow or broad), real output, prices, interest rates and exchange rates maintained a long-run equilibrium relationship. The associated error-correction model of inflation confirms the cointegral relationship among money (narrow or broad), real output, prices, interest rates and exchange rates. It also suggests that money growth has a significant distributed-lag impact on inflation. The presence of this money growth-inflation relationship was associated with a stable narrow money-demand function, whereas the broad money-demand function remained unstable. These results for the study period are consistent with the view that the causal relationship between money growth and inflation holds in Thailand under inflation targeting when the Bank of Thailand deploys a short-term policy interest rate, rather than a monetary aggregate, as the instrument of monetary policy and that this relationship is not conditional on the stability of the money-demand function.

Suggested Citation

  • Hossain, Akhand Akhtar & Arwatchanakarn, Popkarn, 2017. "Does Money Have a Role in Monetary Policy for Price Stability under Inflation Targeting in Thailand?," Journal of Asian Economics, Elsevier, vol. 53(C), pages 37-55.
    • Handle: RePEc:eee:asieco:v:53:y:2017:i:c:p:37-55
    DOI: 10.1016/j.asieco.2017.10.003
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    2. Mahathanaseth, Itthipong & Tauer, Loren W., 2019. "Monetary policy transmission through the bank lending channel in Thailand," Journal of Asian Economics, Elsevier, vol. 60(C), pages 14-32.
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    More about this item

    Keywords

    ARDL modelling; Inflation targeting; Money; Stability of the money demand function; Monetary policy for price stability; SVAR modelling; Thailand;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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