Evaluation of monetary policy: Evidence of the role of money from Malaysia

Abdelkader O. El Alaoui, Hashim Bin Jusoh, Sheila Ainon Yussof and Mohamed Hisham Hanifa

The Quarterly Review of Economics and Finance, 2019, vol. 74, issue C, 119-128

Abstract: This paper, for the best of our knowledge, is the first attempt to assess the role of money in the Malaysian economy using wavelet techniques. To do so, a macroeconomic model-based policy rules has been formulated. In relation with the recurring financial crises, we analyse the relationship between the quantity of money, interest rate, inflation, exchange rate, index of industrial production and equity indices, in the case of Malaysia. In this analysis, UK economy aggregates are taken as benchmark. Therefore, the relationships between monetary policy variables and macroeconomic variables are evolving with time and have non-homogeneous trends across different time scales. Some strong correlations have been found in regard to Malaysian Monetary Policy using, major monetary aggregates; the quantity of Money, the interest rate and the exchange rate inducing some lead-lag interactions between those key variables. In addition, we analyse the effect of LIBOR on Malaysian interest rate (KLIBOR). We found that the KLIBOR is lagging behind the LIBOR in most of the time. In the end, some lessons will be drawn for the monetary policy in Malaysia, in terms of the high impact of the role of money and the expected implications regarding an effective Islamic monetary policy.

Keywords: Islamic monetary policy; Money; Inflation; Time–frequency and wavelet analysis; Causality (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:74:y:2019:i:c:p:119-128

DOI: 10.1016/j.qref.2019.04.005

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