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The Money-prices Nexus for Malaysia: New Empirical Evidence from the Time-varying Cointegration and Causality Tests

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  • Chor Foon Tang

Abstract

The main objective of this study is to empirically re-investigate the money-prices nexus for Malaysia through the Johansen multivariate cointegration and the modified Wald (MWALD) causality techniques. This study covered the monthly dataset from 1971:M1 to 2008:M11. The Johansen cointegration test suggests that the variables under investigation are co-move in the long run. Furthermore, the MWALD causality test shows a bidirectional causal relationship between money supply (M2) and aggregate prices, meaning that both the monetarist's and also the structuralists' views are vindicated in the Malaysian economy. However, the time-varying cointegration and causality tests indicate that the cointegrating and also the causal relationships are not stable over the analysis period. These results suggest that inflation in Malaysia is not purely a monetary phenomenon. Therefore, implementing a tighter monetary policy may not be an effective macro-economic instrument in managing the inflationary behaviour in the Malaysian economy.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Global Economic Review.

Volume (Year): 39 (2010)
Issue (Month): 4 ()
Pages: 383-403

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Handle: RePEc:taf:glecrv:v:39:y:2010:i:4:p:383-403

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Related research

Keywords: Cointegration; inflation; money; MWALD test; rolling regression;

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Cited by:
  1. Tang, Chor Foon & Lai, Yew Wah, 2011. "The Stability of Export-led Growth Hypothesis: Evidence from Asia's Four Little Dragons," MPRA Paper 27962, University Library of Munich, Germany.
  2. Tausch, Arno, 2013. "The hallmarks of crisis. A new center-periphery perspective on long cycles," MPRA Paper 48356, University Library of Munich, Germany.
  3. Chor Foon Tang & Hooi Hooi Lean, 2011. "Revisit Feldstein-Horioka puzzle: evidence from Malaysia," Economics Bulletin, AccessEcon, vol. 31(3), pages 2237-2249.
  4. Tang, Chor Foon, 2011. "Tourism, real output and real effective exchange rate in Malaysia: a view from rolling sub-samples," MPRA Paper 29379, University Library of Munich, Germany.
  5. Chor Foon Tang & Soo Y. Chua, 2012. "The savings-growth nexus for the Malaysian economy: a view through rolling sub-samples," Applied Economics, Taylor & Francis Journals, vol. 44(32), pages 4173-4185, November.

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