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Monetary policy framework changes and the money demand function

Author

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  • Takaharu ISHII

    (Business Breakthrough University, Departure of Management, Koujimachi Square Building 1F,3 Niba n-cho Chiyoda-ku, Tokyo,102-0084 Japan)

Abstract

This paper investigates whether the monetary policy framework has changed since the introduction of inflation targeting in Thailand. We analyze the changes in the model of monetary policy and estimate its effects by estimating the demand function for money. We obtain four results from our analysis. First, changes in the monetary policy framework did not change the model of the money demand function. Second, the adoption of inflation targeting policy leads to structural changes. Third, the effects of monetary policy changed with the adoption of inflation targeting policy. Interest rate elasticity is positive before the framework change but negative after the policy change. However, its value is weak. Fourth, the interest rate elasticities of M2 and r are stable and predictable. This is important because the domestic interest rate, not the exchange rate or the foreign interest rate, controls monetary policy. It can also be applied with the same money demand function as in advanced economies.

Suggested Citation

  • Takaharu ISHII, 2022. "Monetary policy framework changes and the money demand function," Journal of Economics and Political Economy, EconSciences Journals, vol. 9(2), pages 191-207, June.
    • Handle: RePEc:cvv:journ1:v:9:y:2022:i:2:p:191-207
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    References listed on IDEAS

    as
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    More about this item

    Keywords

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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