Unexpected movement in monetary aggregates and its effect on asset price in Thailand

Abstract

This paper aims to develop a structural vector autoregressive (SVAR) model to study the dynamic relationships between broad money and other macroeconomics variables in Thailand. The structural restrictions on SVAR model are based on economics intuition and novel finding that money does not react contemporaneously to transitory component of the short-term interest rate. The model also features stock price and house price as the different response of asset price and goods price will be monitored. There are total of seven monthly endogenous variables included in the model covering the period of 2010 - 2020. The result based on forecast error variance decomposition suggests that the variance of shock in goods price is the main factor that contributes more than 90% to the total variance of forecast error for broad money. In addition, the impulse response analysis provides another three key findings. First, broad money significantly decreases after a few months in response to a rise in short-term rate. Second, an increase in money supply can lead to a rise in real output, goods price, and house price. Lastly, the response of goods price to shock in money supply is faster than the house price but the magnitude of the response is much smaller.