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Tests of the Different Variants of the Monetary Model in a Developing Economy: Malaysian Experience in the Pre- and Post-crisis Periods

Author

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  • Chin, Lee
  • Azali, M
  • Masih, Mansur

Abstract

This study examines the validity of four different variants of the monetary model of exchange rate determination for Malaysia covering both the pre- and post-crisis periods using the vector error-correction models. The findings demonstrate that for both periods, the variables used are cointegrated. Tests tend to suggest that of the four variants of monetary model, the sticky-price model holds in both periods and the flexible-price model holds only in the post-crisis period. The proportionality between the exchange rate and relative money does not hold in any period. The plotted actual and fitted exchange rates for both sub-samples show that the models are able to track the actual exchange rate trend quiet well.

Suggested Citation

  • Chin, Lee & Azali, M & Masih, Mansur, 2009. "Tests of the Different Variants of the Monetary Model in a Developing Economy: Malaysian Experience in the Pre- and Post-crisis Periods," MPRA Paper 122747, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:122747
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    2. Lee, Chin & Law, Chee-Hong, 2013. "The Effects of Trade Openness on Malaysian Exchange Rate," MPRA Paper 45185, University Library of Munich, Germany.

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    Keywords

    exchange rate; Malaysia;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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