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This paper investigates the relative strength of four monetary policy transmission channels (exchange rate, asset price, interest rate and credit) in Malaysia using a 12-variable open economy VAR model. By comparing the baseline impulse response with the constrained impulse response where a particular channel is being switched off, the interest rate channel is found to be the most important in influencing output and inflation in the horizon of about two years, and the credit channel beyond that. The asset price channel is also relevant in the shorter-horizon, more so than the exchange rate channel, particularly in influencing output. For inflation, the exchange rate channel is more relevant than the asset price channel.

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    • "As defined, an increase in the exchange rate means that the domestic currency which is the Ringgit Malaysia (RM) appreciates relative to the currencies of its major trading partners. A similar variable has been used by Domac (1999); however Ibrahim (2005) uses the nominal effective exchange rate, while Tang (2006) uses the nominal bilateral RM/USD exchange rate. "
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    ABSTRACT: Studies on Malaysia monetary policy mostly examine the effect of monetary policy change on output and inflation in aggregate terms. While sectoral output effects of monetary policy have also been investigated, there is however a lack in the study on the effect of policy change on disaggregated inflation. This paper attempts to examine the later issue by employing structural vector autoregressive (SVAR) model. By estimating the model separately for each sub-group of Malaysian consumer price index, we find that a modest monetary policy shock results in varying degree of responses in disaggregated inflation. In other words, some sub-group inflation react instantly while others respond sluggishly to a monetary policy shock. In contrast to aggregate inflation response, there is also evidence of price puzzle. The results give some insight to monetary authority on how to control inflation in aggregate as well as in disaggregate terms and in turn manage the cost of living issues in Malaysia.
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    ABSTRACT: This paper addresses the end of the 1997 Asian financial crisis in Malaysia and South Korea and defines changes in monetary policy post-crisis. Using a backwards-looking Chow Forecasting test, end dates for the crisis were empirically determined in the two countries of interest. Time series were then constructed for the pre- and post-crisis time periods using the estimated recovery dates. Vector autoregression was run on the models and impulse responses constructed. Four monetary transmission channels, namely a foreign interest rate, the real exchange rate, a domestic interest rate, and the monetary aggregate, were studied. By looking at these transmission mechanisms pre- and post- crisis, changes in monetary policy were detected. The results suggest that while Malaysia's monetary policy experienced little alteration between the pre- and post-crisis eras, South Korea's policy was significantly affected. This disparity between Malaysia and South Korea's overall results is possibly a function of the exchange rate regimes. While Malaysia continued to support a fixed exchange rate after the crisis, South Korea abandoned its abandoned its peg. This indicates that a major factor in monetary policy pre- and post-crisis was the exchange rate regimes.
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    ABSTRACT: This study examines the effects of monetary policy on firms’ balance sheet, with a particular focus on the effects upon the firms’ fixed-investment spending. It uses a dynamic panel system GMM estimation proposed by Blundell and Bond (1998). The focal point has given to the two main channels of monetary policy transmission mechanism such as interest rates and broad credit channel in transmitting to firm investment spending. By estimating the firms’ investment model using a dynamic neo-classical framework, the empirical results tend to support the relevance of interest rates and broad credit channel in transmitting to the firm balance sheet condition that is firm’s investment spending. The results also reveal that the effect of monetary policy channels to the firms’ investment are heterogeneous fashioned, which is the small firms who faced financial constraint are responded more due to monetary tightening as compared to the large firm (less constraint firms). Thus, the monetary authority has to concern the microeconomic aspects of the firm in formulation their monetary policy.
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