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Monetary Policy and Exchange Market Pressure in Malaysia

Author

Listed:
  • Chin, Lee
  • Habibullah, Muzafar Shah
  • Sheik Kyin, Tey

Abstract

Exchange market pressure (EMP), which provides a measure of the volume of intervention necessary to achieve any desired exchange rate target, is the latest model used in measurement of exchange rate condition. In order to obtain a more complete picture of Malaysia’s condition and to examine how Bank Negara handles different exchange market pressures, this study considers the Malaysian exchange rate in relation to that of its two major trading partners– namely, Japan (RM/YEN exchange rate) and the United States (RM/USD exchange rate)– to construct EMP models. Monthly data from 1990:1 to 2008:9 were used in this study, and the sample period has been divided into a few periods based on crisis periods and Malaysia’s experience in different exchange rate regimes. Vector autoregression (VAR) modeling is used. The study’s findings suggest that the prescription of traditional theory was not followed by Malaysia and that Bank Negara should implements different monetary policy with different EMP only under crisis and fixed exchange rate regimes.

Suggested Citation

  • Chin, Lee & Habibullah, Muzafar Shah & Sheik Kyin, Tey, 2013. "Monetary Policy and Exchange Market Pressure in Malaysia," MPRA Paper 96862, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:96862
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    References listed on IDEAS

    as
    1. Mr. Atish R. Ghosh & Ms. Gabriela Basurto, 2000. "The Interest Rate-Exchange Rate Nexus in the Asian Crisis Countries," IMF Working Papers 2000/019, International Monetary Fund.
    2. Burdekin, Richard C K & Burkett, Paul, 1990. "A Re-examination of the Monetary Model of Exchange Market Pressure: Canada, 1963-1988," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 677-681, November.
    3. Gochoco-Bautista, Maria Socorro & Bautista, Carlos C., 2005. "Monetary policy and exchange market pressure: The case of the Philippines," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 153-168, March.
    4. Bahmani-Oskooee, Mohsen & Shiva, Reza, 1998. "A method of detecting whether a central bank engages in the black market for foreign exchange: Evidence from Iran," Economics Letters, Elsevier, vol. 60(1), pages 97-103, July.
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    More about this item

    Keywords

    Exchange market pressure; monetary policy;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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