Economic uncertainty, monetary uncertainty, and the demand for money in Thailand
by Mohsen Bahmani-Oskooee; Kaveepot Satawatananon; Dan Xi
Global Business and Economics Review (GBER), Vol. 17, No. 4, 2015

Abstract: Economic uncertainty reflected in the volatility of real GDP and monetary uncertainty reflected in the volatility of nominal monetary figure such as M2 are said to induce people to change their portfolio and reallocate their assets between cash and other financial assets. Either uncertainty could make public more cautious and therefore, hold more cash and less of other assets. On the other hand, to hedge against uncertain prices, public may hedge by holding more real less risky assets and less cash. We test these hypotheses by including a measure of output uncertainty and a measure of monetary uncertainty in the demand for money function in Thailand. Using bounds testing approach we find that both measures of uncertainty do have short-run as well as long-run effects on the demand for cash balances.

Online publication date: Thu, 15-Oct-2015

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