An Empirical Test of Money Demand in Thailand from 1993 to 2012

The present study uses the most recent time series data obtained from the Bank of Thailand during the first quarter of 1993 and the fourth quarter of 2012 to investigate the long-run relationship between M1, M2, and M3 money demands and the two determinants (real GDP and interest rate). We use the model specification of Stock and Watson (1993) and Ball (2001). Our estimation techniques include Johansen cointegration test and the dynamic ordinary least squares (DOLS). We find that the DOLS procedure is not applicable for our data set. However, our results from Johansen cointegration test reveal that there is only a long-run relationship between M1 money demand, real GDP and interest rate. In the short run, only a change in real GDP affects M1 money holding. The instability of M1 money demand function makes it difficult for monetary authority to pursuit meaningful conducts of monetary policy.