The Relationship Between Money and Income in Thailand: Some Evidence for the 1980s Using a Cointegration Approach

This paper uses cointegration and vector auto regression techniques to examine which, if any, of the financial aggregates - the monetary base, M1, M2 or credit - is an appropriate intermediate target for the Thai monetary authorities. From the spectrum of monetary aggregates, M1 seems to be the best leading indicator of money income and the most suitable intermediate target. M1 was found to have a cointegrating relationship with nominal income in the long run and to Granger-cause nominal income in the short run. Overall, the results suggest that a higher weight should be attached to M1 than to other money/credit aggregates in the formulation and conduct of Thai monetary policy