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Relative price effects of monetary policy shock in Malaysia: a svar study

Author

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  • Abdul Karim, Zulkefly
  • Zaidi, Mohd Azlan Shah
  • W.N.W, Azman-Saini

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.

Suggested Citation

  • Abdul Karim, Zulkefly & Zaidi, Mohd Azlan Shah & W.N.W, Azman-Saini, 2011. "Relative price effects of monetary policy shock in Malaysia: a svar study," MPRA Paper 38768, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38768
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    References listed on IDEAS

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    More about this item

    Keywords

    monetary policy; SVAR; inflation; relative price;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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