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Financial Vulnerability and Economic Dynamics in Malaysia

Author

Listed:
  • Tai-Hock Kuek

    (Faculty of Economics & Business, Universiti Malaysia Sarawak, Sarawak, Malaysia)

  • Chin-Hong Puah

    (Faculty of Economics & Business, Universiti Malaysia Sarawak, Sarawak, Malaysia)

  • M. Affendy Arip

    (Faculty of Economics & Business, Universiti Malaysia Sarawak, Sarawak, Malaysia)

Abstract

This study attempts to develop a financial vulnerability indicator serving as a composite indicator for the state of financial vulnerability. The indicator was constructed from 10 variables of macroeconomic, financial and property market by extracting a common vulnerability component through the dynamic approximate factor model. On the feedback and amplification effects, the outcome revealed that financial vulnerability shock catalysed significant negative effects on economic activity in a high-vulnerability regime, while the impact was negligible in periods of low vulnerability. This study highlighted the usefulness of composite indicators as an early warning mechanism to gauge vulnerabilities in the Malaysian financial system.

Suggested Citation

  • Tai-Hock Kuek & Chin-Hong Puah & M. Affendy Arip, 2020. "Financial Vulnerability and Economic Dynamics in Malaysia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 55-73.
    • Handle: RePEc:cbk:journl:v:9:y:2020:i:si:p:55-73
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol9si-3.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ján Buleca & Nikola Šubová & Lenka Malièká, 2022. "The Relationship between Household Wealth and Financial Vulnerability in the Post-communist Countries of the Euro Area," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 70(7-8), pages 569-588, July.
    2. MARKOVIĆ Milan & MARJANOVIĆ Ivana, 2022. "Vulnerability To The Currency Crisis: The Case Of Serbia," Management of Sustainable Development, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 14(2), pages 17-21, December.
    3. Le Dinh Hac & Dinh Tran Ngoc Huy & Nguyen Ngoc Thach & Bui Minh Chuyen & Pham Thi Hong Nhung & Tran Duc Thang & Tran Tuan Anh, 2021. "Enhancing risk management culture for sustainable growth of Asia commercial bank -ACB in Vietnam under mixed effects of macro factors," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(3), pages 291-307, March.
    4. Soh, Ann-Ni, 2020. "A Review on the Leading Indicator Approach towards Economic Forecasting," MPRA Paper 103854, University Library of Munich, Germany.

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    More about this item

    Keywords

    Financial Vulnerability Indicator; Financial Crises; Macro-financial Linkages; Markov-switching Bayesian VAR.;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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