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Monetary Model of Exchange Rate for Thailand: Long-run Relationship and Monetary Restrictions

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Author Info
Liew, Venus Khim-Sen
Baharumshah, Ahmad Zubaidi
Puah, Chin-Hong

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Abstract

This paper examines the long-run relationship between exchange rate and its determinants based on the flexible-price monetary model. Multivariate cointegration approach (Johansan 1988, 1989 and Johansen-Juselius 1990) is adopted to attain our objective of study. The empirical results provide evidence favoring the monetary approach to exchange rate for a small and open emerging economy, namely Thailand. In addition, the validity of the underlying assumptions of the monetary approach to the determination of exchange rate is established. The above findings suggest that exchange rate players may effectively monitor and forecast the exchange rate movement via the money supplies, incomes, and interest rates variables of both Thailand and Japan. Besides, one has to follow the economic development of Thailand’s major trading partner, Japan, to understanding the movement of exchange rate for Thailand. Moreover, our findings add new insights to accompaniment previous studies that documented the important influence of US in the emerging Asian economies.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17715.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:17715

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Related research
Keywords: Exchange rate; monetary model; Thailand; cointegration;

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Find related papers by JEL classification:
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
F31 - International Economics - - International Finance - - - Foreign Exchange
C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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  1. MacDonald, Ronald & Taylor, Mark P., 1991. "The monetary approach to the exchange rate : Long-run relationships and coefficient restrictions," Economics Letters, Elsevier, vol. 37(2), pages 179-185, October. [Downloadable!] (restricted)
  2. Miyakoshi, Tatsuyoshi, 2000. "The Monetary Approach to the Exchange Rate: Empirical Observations from Korea," Applied Economics Letters, Taylor and Francis Journals, vol. 7(12), pages 791-94, December. [Downloadable!] (restricted)
  3. Frenkel, Jacob A, 1976. " A Monetary Approach to the Exchange Rate: Doctrinal Aspects and Empirical Evidence," Scandinavian Journal of Economics, Blackwell Publishing, vol. 78(2), pages 200-224.
  4. Dutt, Swarna D & Ghosh, Dipak, 2000. "An Empirical Note on the Monetary Exchange Rate Model," Applied Economics Letters, Taylor and Francis Journals, vol. 7(10), pages 669-71, October. [Downloadable!] (restricted)
  5. Lee Chin & M. Azali & Zulkornain Yusop & Mohammed Yusoff, 2007. "The monetary model of exchange rate: evidence from The Philippines," Applied Economics Letters, Taylor and Francis Journals, vol. 14(13), pages 993-997. [Downloadable!] (restricted)
  6. Cheung, Yin-Wong & Lai, Kon S, 1993. "A Fractional Cointegration Analysis of Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 103-12, January.
  7. Dara LONG & Sovannroeun SAMRETH, 2008. "The Monetary Model of Exchange Rate: Evidence from the Philippines Using ARDL Approach," Economics Bulletin, Economics Bulletin, vol. 6(31), pages 1-13. [Downloadable!]
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  8. Frank W. Agbola & Chartri Kunanopparat, 2005. "Determinants of exchange rate practices: some empirical evidence from Thailand," Applied Economics, Taylor and Francis Journals, vol. 37(7), pages 807-816, April. [Downloadable!] (restricted)
  9. Abbott, Andrew & De Vita, Glauco, 2002. "Testing the long-run structural validity of the monetary exchange rate model," Economics Letters, Elsevier, vol. 75(2), pages 157-164, April. [Downloadable!] (restricted)
  10. Rapach, David E. & Wohar, Mark E., 2002. "Testing the monetary model of exchange rate determination: new evidence from a century of data," Journal of International Economics, Elsevier, vol. 58(2), pages 359-385, December. [Downloadable!] (restricted)
  11. Liew, Venus Khim-Sen, 2009. "Linear and nonlinear monetary approaches to the exchange rate of the Philippines peso-Japanese yen," MPRA Paper 15550, University Library of Munich, Germany, revised 05 Jun 2009. [Downloadable!]
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