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

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  • Johari, Mohamad Shukri

    (Department of Economics Faculty of Business and Management Universiti Teknologi MARA Cawangan Terengganu Kampus Dungun (UiTM) 23000 Dungun, Terengganu MALAYSIA.)

  • Habibullah, Muzafar

    (Putra Business School 43400 UPM Serdang, Selangor MALAYSIA EIS-UPMCS Centre for Future Labour Market Studies Menara PERKESO Putrajaya No. 6, Persiaran Perdana, Presint 2 62100 Putrajaya MALAYSIA.)

  • Abdul Ghani, Roseziahazni

    (Department of Finance Faculty of Business and Management Universiti Teknologi MARA Cawangan Terengganu Kampus Dungun (UiTM) 23000 Dungun, Terengganu MALAYSIA.)

  • Abdul Manaf, Suhaily Maizan

    (Department of Finance Faculty of Business and Management Universiti Teknologi MARA CawanganTerengganu Kampus Dungun (UiTM) 23000 Dungun, Terengganu MALAYSIA.)

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.

Suggested Citation

  • Johari, Mohamad Shukri & Habibullah, Muzafar & Abdul Ghani, Roseziahazni & Abdul Manaf, Suhaily Maizan, 2021. "The Macroeconomic Fundamentals of the Real Exchange Rate in Malaysia: Some Empirical Evidence," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(2), pages 81-89.
    • Handle: RePEc:ukm:jlekon:v:55:y:2021:i:2:p:81-89
    DOI: http://dx.doi.org/10.17576/JEM-2021-5502-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Autoregressive Distributed Lag (ARDL); Equilibrium exchange rates (EER); bound testing; exchange rates misalignment;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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