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The Effect of Exchange Rates on Economic Growth: Empirical Testing on Nominal Versus Real

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  • Mori Kogid
  • Rozilee Asid
  • Jaratin Lily
  • Dullah Mulok
  • Nanthakumar Loganathan

Abstract

This study attempts to investigate the effects of the exchange rates on economic growth in Malaysia using time series data spanning from 1971 to 2009. Both exchange rates, nominal and real, are considered to have similar effects on economic growth. The results of ARDL bounds test suggest that long-run cointegration exists between both nominal and real exchange rates and economic growth with a significant positive coefficient recorded for real exchange rate. In addition, the results of ECM-based ARDL also reveal that both exchange rates have a similar causal effect towards economic growth. Considering the importance of exchange rate variables, especially the real term, these findings eventually suggest that a systematic exchange rate via monetary policy should be properly developed to promote the stability and sustainability of economic growth in Malaysia.

Suggested Citation

  • Mori Kogid & Rozilee Asid & Jaratin Lily & Dullah Mulok & Nanthakumar Loganathan, 2012. "The Effect of Exchange Rates on Economic Growth: Empirical Testing on Nominal Versus Real," The IUP Journal of Financial Economics, IUP Publications, vol. 0(1), pages 7-17, March.
    • Handle: RePEc:icf:icfjfe:v:10:y:2012:i:1:p:7-17
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    Cited by:

    1. La Saidi & Pasrun Adam & Rostin & Zainuddin Saenong & Muh. Yani Balaka & Gamsir & Asmuddin & Salwiah, 2017. "The Effect of Stock Prices and Exchange Rates on Economic Growth in Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 527-533.
    2. DO Thi My Huong, 2019. "Real Exchange Rate and Economic Growth: An Empirical Assessment for Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(6), pages 680-690, June.
    3. Musa, Nuhu, 2020. "Impact of Exchange Rate Volatility on Inflation in Nigeria," Journal of Contemporary Research in Business, Economics and Finance, Michael Laurence, vol. 3(1), pages 26-38.
    4. Diby Francois Kassi & Yao Li & Zhankui Dong, 2023. "The mitigating effect of governance quality on the finance‐renewable energy‐growth nexus: Some international evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 316-354, January.
    5. Long Vorlak & Ignatius Abasimi & Yang Fan, 2019. "The Impacts of Exchange Rate on Economic Growth in Cambodia," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 5(2), pages 78-83.

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