Tests of the different variants of the monetary model in a developing economy: Malaysian experience in the pre- and post-crisis periods

Chin Lee (), M. Azali () and A. Mansur M. Masih

Applied Economics, 2009, vol. 41, issue 15, pages 1893-1902

Abstract: This study examines the validity of four different variants of the monetary model of exchange rate determination for Malaysia covering both the pre- and post-crisis periods using the vector error-correction models. The findings demonstrate that for both periods, the variables used are cointegrated. Tests tend to suggest that of the four variants of monetary model, the sticky-price model holds in both periods and the flexible-price model holds only in the post-crisis period. The proportionality between the exchange rate and relative money does not hold in any period. The plotted actual and fitted exchange rates for both sub-samples show that the models are able to track the actual exchange rate trend quiet well.

Date: 2009
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