Money demand, financial liberalization and currency substitution in Malaysia
(:hiS study attempts to examine the relationship between money demand and real gross domestic product (GDP), interest rate, real effective exchange rate and the fmancial liberalization indicator in Malaysia. The ADF unit root test and 10hansen-luselius co integration test were utilized to analyze...
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| Main Author: | |
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| Format: | Thesis |
| Language: | English |
| Published: |
2010
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| Subjects: | |
| Online Access: | http://ir.unimas.my/id/eprint/9039/2/Jing%20Lee%28fulltext%29.pdf |
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| Summary: | (:hiS study attempts to examine the relationship between money demand and real
gross domestic product (GDP), interest rate, real effective exchange rate and the fmancial
liberalization indicator in Malaysia. The ADF unit root test and 10hansen-luselius
co integration test were utilized to analyze the annual time series data which range from
1978 to 2007. Then, vector error correlation estimate was used to investigate the impact
of money demand to the variabley Growth in real GDP level encourages the increase in
the demand for Ml, which is consistent with most of the findings of empirical studies
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done on money demand. Also, the result showed a positive relationship of real effective
exchange rate demand for money. In other words, currency substitution effect existed in
the money demand function. Nevertheless, the interest rate indicates negative impact on
narrow money demand. The fluctuation in the short-run interest rate encourages money
holder to switch to holding other financial assets, which is a better option to gain return
on the money. As for financial liberalization, the relationship between narrow money
demand is negative because the financial innovations had change the demand for Ml to
broad money. A stable long-run equilibrium relationship exists among the money
demand function and variables. |
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