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The Impacts of Divisia Money on MYR/USD Exchange Rate Determination in Malaysia

In: Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics

Author

Listed:
  • Choi-Meng Leong
  • Chin-Hong Puah
  • Venus Khim-Sen Liew
  • Matviychuk-Soskina Nadiya

Abstract

The unstable money demand function over the recent decades may explain the unsatisfactory performance of the exchange rate model. Numerous studies have shown that Divisia money serves as a better variable for a stable money demand function. In this study, Divisia money is used as an alternative money supply in MYR/USD exchange rate determination. This study finds that Divisia money differential, real income differential, relative short-term interest rate and real stock prices affect the MYR/USD exchange rate in the long run. The major implication of this study is that policy-makers could monitor the MYR/USD exchange rate via the money supplies following the principle of Divisia monetary aggregate, which assigns higher weightage to more frequently traded monetary assets.

Suggested Citation

  • Choi-Meng Leong & Chin-Hong Puah & Venus Khim-Sen Liew & Matviychuk-Soskina Nadiya, 2021. "The Impacts of Divisia Money on MYR/USD Exchange Rate Determination in Malaysia," International Symposia in Economic Theory and Econometrics, in: Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics, volume 28, pages 243-261, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:isetez:s1571-038620210000028014
    DOI: 10.1108/S1571-038620210000028014
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