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The role of money in the transmission mechanism of monetary policy: evidence from Thailand

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  • Pojanart Sunirand
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    Abstract

    Meltzer (2001b) argues that the current trend for downgrading the role of money in standard macro models is erroneous as it masks those monetary transmission channels which operate through changes in relative yields of assets. This paper shows that the scope of these changes can be empirically segregated into (i) the changes in relative prices along the term structure (term-structure effect) and (ii) the changes in relative risk premia component of different kinds/classes of assets (risk-premia effect). Using Thailand data, I found that both effects are significant. I argue from this finding that standard macro models which are based on the two-asset assumption are distorting and that the problem can be alleviated by introducing an explicit role of money in these models.

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    File URL: http://eprints.lse.ac.uk/24850/
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 24850.

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    Length: 26 pages
    Date of creation: May 2003
    Date of revision:
    Handle: RePEc:ehl:lserod:24850

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    Keywords: Monetary transmission mechanism; Money; Two-asset world assumption;

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    13. Ireland, Peter N, 2004. "Money's Role in the Monetary Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 969-83, December.
    14. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867-1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2, octubre-d.
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