An attempt at using a recursive system to predict the quantity of money balances held in Thailand: 1955-1969
Date
1971-06
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Abstract
The purpose of this paper is to determine whether a certain class of simultaneous difference equation systems can be applied for predicting the aggregate quantity of money balances in Thailand from 1955 to 1969. The system is treated as being recursive. One important reason for the desirability of recursive system is the explicitness of causality in such models. Computationally too, recursive systems have an advantage in that, in general, single least-squares estimation of the structural parameters does not introduce simultaneous equation bias, and is equivalent to maximum likelihood estimation. This makes recursive systems doubly advantageous; there are, of course, other reasons for preferring them.
What we shall try to do in this paper is, firstly to estimate the structural parameters of the system. Then, we shall estimate the truncated one- period multipliers of the system. Finally, we shall ascertain the ex post predictive efficacy of the system in two ways: (a) by the method of structural forecasting, and (b) by the method of reduced form forecasting. The last section of the paper will be devoted to obtaining the characteristic equation,
or final form, of the system to enable us to determine the characteristic response of the system, given the initial conditions.