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ABSTRACT 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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    ABSTRACT: Global economic reformation has caused various direct and indirect effects on Malaysia's economic and the most attracting effects can be described throughout the Malaysia's labor market is the unemployment scenario. In Malaysia, most of manufacturing sector has applied high-tech machinery in order to produce more products in a short period; and not depending on labor productivity. These causes job turnover in most of major economic sectors in Malaysia and become worse once the real exchange rate become unstable after Asian financial crises in 1997. The main purpose of this study is to analyze the shocks and integration between financial development stability and overall unemployment in Malaysia for entire period of 1980-2010 by applying unit root test (Augmented Dickey-Fuller, Phillip-Perron and Zivot-Andrew), Gregory-Hansen cointegration test, vector error-correction model (VECM); and causality test. The estimated results clearly show that there is a shocks effect in the middle of 1990s; and long-run cointegration effects appeared between Malaysia's monetary policy and unemployment scenario for Malaysia. This happens because of the 'turn-over effect' appeared in Malaysia's labor market, where the high-educated job seekers are competing with low-educated with experience labor force. Besides that, the numbers of labor used in the agriculture and manufacturing sectors in Malaysia also decline because of technological used in the production line and overflow of foreign labor. Although the findings of this study clearly shows a dynamic long-run connection with 21% of speed of adjustment between Malaysia's monetary policy and unemployment; but surprisingly the causality results does not indicates any causal relation between both variables. In conclusion, we clarify that the monetary policy is not connected with overall unemployment in Malaysia.
    International Journal of Emerging Sciences. 01/2012; 1(2):247-258.
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    ABSTRACT: This article conducts an in-depth investigation into building a Structural Vector Autoregression (SVAR) model and analysing the Malaysian monetary policy. Considerable attention is paid to: (i) the selection of foreign, policy and target variables; (ii) establish identifying restrictions and improve the estimates of impulse response functions; (iii) assess the importance of intermediate channels in transmitting monetary policy mechanism; and (iv) the way in which the 1997 Asian financial crisis affected the working of monetary policy. Malaysia is an interesting small open economy to study because, following this crisis, the government imposed capital and exchange rate control measures. The overall results suggest that the crisis and the subsequent major shift in the exchange rate regime have significantly affected the Malaysian ‘Black Box’. In the pre-crisis period, domestic variables appear to be more vulnerable to foreign monetary shocks. Further, the exchange rate played a significant role in transmitting the interest rate shocks, whereas credit and asset prices helped to propagate the money shock. In the post-crisis period however, asset prices play a more domineering role in intensifying the effects of both interest rate and money shocks on output, and the economy was insulated from foreign shocks.
    Applied Economics 10/2012; 44(29):3841-3856. · 0.46 Impact Factor
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    ABSTRACT: This paper examines the effects of monetary policy on investment spending in Malaysia for 1990–2008 using firm-level data. The focal point of this paper is two main channels of monetary policy transmission mechanism, namely, the interest rate and broad credit channels. Using a dynamic neoclassical investment function, empirical results based on system generalised method of moments (GMM) estimations and a sample of 419 firms support the relevance of both interest rate and broad credit channels in influencing investment spending. The results also reveal that the effect of monetary policy channels on firm investment is heterogeneous, such that small firms (i.e. credit-constrained firms) are more responsive to monetary tightening when compared to large firms (i.e. less constrained firms).
    Journal of the Asia Pacific Economy 08/2013; 18(3). · 0.64 Impact Factor


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