Abstract
In this study, we uses recent time quarterly data obtained from the Bank of Thailand during 1993 and 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 the dynamic ordinary least squares (DOLS) and Johansen cointegration test. The results show that the DOLS procedure is not applicable for our data set. However, the 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 conduct a meaningful monetary policy.
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