The Macroeconomic Fundamentals of the Real Exchange Rate in Malaysia: Some Empirical Evidence

Mohamad Shukri Johari (), Muzafar Shah Habibullah, Roseziahazni Abdul Ghani () and Suhaily Maizan Abdul Manaf ()
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Mohamad Shukri Johari: Department of Economics Faculty of Business and Management Universiti Teknologi MARA Cawangan Terengganu Kampus Dungun (UiTM) 23000 Dungun, Terengganu MALAYSIA.
Roseziahazni Abdul Ghani: Department of Finance Faculty of Business and Management Universiti Teknologi MARA Cawangan Terengganu Kampus Dungun (UiTM) 23000 Dungun, Terengganu MALAYSIA.
Suhaily Maizan Abdul Manaf: Department of Finance Faculty of Business and Management Universiti Teknologi MARA CawanganTerengganu Kampus Dungun (UiTM) 23000 Dungun, Terengganu MALAYSIA.

Jurnal Ekonomi Malaysia, 2021, vol. 55, issue 2, 81-89

Abstract: The aim of this paper is to estimate the equilibrium of exchange rates and identify the roles of macroeconomics fundamentals affecting exchange rates using Malaysian data spanning 1970 to 2019. This study adopts the Autoregressive Distributed Lag model to examine the long-run relationships or cointegration among variables and the dynamic effect within variables in the short-run over the sample period. The results suggest that inflation rate and national income growth rate play important roles in influencing exchange rate movement. The results also reveal that the misalignment of exchange rates is quite small and stable during 1988 to 2019, except for 2015 which was attributed to the weaker growth in China. Consecutively, this study suggests that the parity condition is only important in the long-run in explaining exchange rates behaviour for the sample country.

Keywords: Autoregressive Distributed Lag (ARDL); Equilibrium exchange rates (EER); bound testing; exchange rates misalignment (search for similar items in EconPapers)
JEL-codes: E43 E52 F31 F32 F33 F41 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ukm:jlekon:v:55:y:2021:i:2:p:81-89

DOI: 10.17576/JEM-2021-5502-7

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