Macroeconomic forces and capital market integration A VAR analysis for Malaysia

Mansor Ibrahim

Journal of the Asia Pacific Economy, 2003, vol. 8, issue 1, 19-40

Abstract: This paper applies cointegration and VAR modeling to evaluate the long-run relationship and dynamic interactions between the Malaysian equity market, various economic variables, and major equity markets of the US and Japan. From the analysis, we find evidence for cointegration among the variables. The variance decompositions and impulse-response functions generated from the VAR suggest the dominant influence of nominal variables, particularly the money supply on Malaysian equity prices. At the same time, variations in equity prices do contain some information on such nominal variables, as money supply and consumer prices, suggesting bidirectional causality between them. We also note from the results the significant role of international equity prices on Malaysian equity prices as well as on Malaysian economic variables. Interestingly, the nature of the long-run relationship and spillovers of disturbances in the two major markets to the Malaysian economy is different. From a policy point of view, to the extent that monetary authority can control money supply, it has to be very cautious in implementing monetary policy since it has repercussions on financial stability. Moreover, disturbances of two major financial markets need to be treated differently in the information set of policy-makers.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://hdl.handle.net/10.1080/1354786032000045228 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:rjapxx:v:8:y:2003:i:1:p:19-40

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rjap20

DOI: 10.1080/1354786032000045228

Access Statistics for this article

Journal of the Asia Pacific Economy is currently edited by Leong Liew

More articles in Journal of the Asia Pacific Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().