The Impact of Business Cycle on the Monetary Activities in Thailand.

Abstract

The business cycle is a phenomenal event which always takes place in the economic system. Each phase of business cycle can cause many economic variables to change. Thus, the aggregated economy is also affected by the business cycle fluctuation. The objectives of this study aimed at analyzing the impact of business cycle in Thailand on monetary activities which are the important economic variables. Multiple linear regression was the method used to analyse the relationship between business cycle and the monetary activities. According to some business cycle theories, gross domestic product was considered as a business cycle indicator on the aggregated supply side, and real aggregated expenditure, gross domestic investment, real capital formation were also considered as business cycle indicators on the demand side. The value of the variables would indicate the business cycle phase in which high value of those variables means the economy is in a prosperous phase and low value means the depression one. At the same time, consumer price index, interest rate, money supply, financial institution credit, balance of payment and stock price index in the securities market of Thailand were other variables for monetary activities in the economic system. The results showed that the business cycle indicators on the demand side had strong influence on those monetary activities. That is, higher gross domestic investment will lead to higher consumer price index, interest rate, financial institution credit and stock price index. On the opposite side, higher aggregated expenditure will lead to the worst balance of payment. While higher capital formation caused money supply in the economy for the following year to increase. Hence, it may be possible to establish the direction paths of those monetary activities during each phase of business cycle if we could control the activities of the above mentioned business cycle indicators.