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Exchange Rate – Relative Price Nonlinear Cointegration Relationship in Malaysia

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Author Info

  • Venus Khim-Sen Liew

    ()
    (Labuan School of International Business and Finance, Universiti Malaysia Sabah)

  • Chee-Keong Choong

    ()
    (Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman)

  • Evan Lau

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

  • Kian-Ping Lim

    ()
    (Labuan School of International Business and Finance, Universiti Malaysia Sabah)

Abstract

The finding of exchange rate–relative price nonlinear cointegration relationship in Malaysia, among others, suggests that nonlinear Purchasing Power Parity (PPP) equilibrium may be regarded as reference point in judging the short run misalignment of the Ringgit currency and thereby deducing effective policy actions. Moreover, economists who wish to extend the simple PPP exchange rate model into the more complicated monetary exchange models may do so comfortably, at least in the text of Malaysia. Nonetheless, such attempt should be tailored in a nonlinear way to suit the nonlinear characteristic of exchange rate behaviour

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 6 (2005)
Issue (Month): 11 ()
Pages: 1-16

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Handle: RePEc:ebl:ecbull:eb-05f30006

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  1. Lucio Sarno, 2000. "Real exchange rate behaviour in high inflation countries: empirical evidence from Turkey, 1980-1997," Applied Economics Letters, Taylor & Francis Journals, vol. 7(5), pages 285-291.
  2. Bertola, G. & Svensson, L.E., 1990. "Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models," Papers 481, Stockholm - International Economic Studies.
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  4. Peel, David & Sarno, Lucio & Taylor, Mark P, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles," CEPR Discussion Papers 2658, C.E.P.R. Discussion Papers.
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  8. Garratt, Anthony & Psaradakis, Zacharias & Sola, Martin, 1998. "An Empirical Reassessment of Target-zone Nonlinearities," Cambridge Working Papers in Economics 9825, Faculty of Economics, University of Cambridge.
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  11. Hasan, Zubair, 1999. "Recent financial crisis in Malaysia: response, results, challenges," MPRA Paper 21844, University Library of Munich, Germany, revised 2000.
  12. Venus Khim-Sen Liew & Terence Tai-Leung Chong & Kian-Ping Lim, 2003. "The inadequacy of linear autoregressive model for real exchange rates: empirical evidence from Asian economies," Applied Economics, Taylor & Francis Journals, vol. 35(12), pages 1387-1392.
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  15. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
  16. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
  17. Ma, Yue & Kanas, Angelos, 2000. "Testing for nonlinear Granger causality from fundamentals to exchange rates in the ERM," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(1), pages 69-82, January.
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Cited by:
  1. Brian Francis & Sunday Iyare, 2006. "Do exchange rates in caribbean and latin american countries exhibit nonlinearities?," Economics Bulletin, AccessEcon, vol. 6(14), pages 1-20.

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