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

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  • Sunirand, Pojanart

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.

Suggested Citation

  • Sunirand, Pojanart, 2003. "The role of money in the transmission mechanism of monetary policy: evidence from Thailand," LSE Research Online Documents on Economics 24850, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:24850
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    File URL: http://eprints.lse.ac.uk/24850/
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    More about this item

    Keywords

    monetary transmission mechanism; money; two-asset world assumption;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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