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Monetary Policy and External Factors: Empirical Evidence for Association of Southeast Asian Nations 3

Author

Listed:
  • Pei-Tha Gan

    (Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris (Sultan Idris Education University), 35900 Tanjong Malim, Perak, Malaysia,)

  • Nyuk-Ling Lee

    (Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris (Sultan Idris Education University), 35900 Tanjong Malim, Perak, Malaysia)

  • Mohammed Yahya Mohammed Hussin

    (Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris (Sultan Idris Education University), 35900 Tanjong Malim, Perak, Malaysia,)

  • Norimah Rambeli

    (Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris (Sultan Idris Education University), 35900 Tanjong Malim, Perak, Malaysia.)

Abstract

The motivation for this paper is the external factors can be the important objectives of the monetary policy in a small open economy. This study will extend the standard Taylor rule that initially encompassed output and inflation by adding the exchange rate and terms of trade (TOT). By using the augmented Taylor rule, this paper examines exchange rates and TOT and determines its empirical validity based on a sample of Association of Southeast Asian Nations 3 countries. Using the technique of unrestricted error correction model, the findings provide some policy implications; the uncertain movements of the exchange rate and TOT can be fine-tuned by the central bank's interest rate instrument, and the inflation and output are useful policy indicators for monetary decision making of central bank, which eventually promotes the best economic outcomes

Suggested Citation

  • Pei-Tha Gan & Nyuk-Ling Lee & Mohammed Yahya Mohammed Hussin & Norimah Rambeli, 2016. "Monetary Policy and External Factors: Empirical Evidence for Association of Southeast Asian Nations 3," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1585-1590.
    • Handle: RePEc:eco:journ1:2016-04-39
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange Rate; Monetary Policy; Taylor Rule; Terms of Trade;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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