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The Relative Importance Of Monetary Policy Transmission Channels In Malaysia

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  • Hsiao Chink Tang

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    Abstract

    This paper investigates the relative strength of four monetary policy transmission channels (exchange rate, asset price, interest rate and credit) in Malaysia using a 12-variable open economy VAR model. By comparing the baseline impulse response with the constrained impulse response where a particular channel is being switched off, the interest rate channel is found to be the most important in influencing output and inflation in the horizon of about two years, and the credit channel beyond that. The asset price channel is also relevant in the shorter-horizon, more so than the exchange rate channel, particularly in influencing output. For inflation, the exchange rate channel is more relevant than the asset price channel.

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    Bibliographic Info

    Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2006-23.

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    Length: 32 pages
    Date of creation: Aug 2006
    Date of revision:
    Handle: RePEc:een:camaaa:2006-23

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    1. Domac, Ilker, 1999. "The distributional consequences of monetary policy : evidence from Malaysia," Policy Research Working Paper Series, The World Bank 2170, The World Bank.
    2. Tilak Abeysinghe & Gulasekaran Rajaguru, 2003. "Quarterly Real GDP Estimates for China and ASEAN4 with a Forecast Evaluation," Departmental Working Papers, National University of Singapore, Department of Economics wp0404, National University of Singapore, Department of Economics.
    3. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 39(3), pages 433-448, August.
    4. M. Azali & K. G. P. Matthews, 1999. "Money-income and credit-income relationships during the pre- and the post-liberalization periods: evidence from Malaysia," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 31(10), pages 1161-1170.
    5. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, Elsevier, vol. 45(3), pages 561-586, June.
    6. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 2, volume 1, number 0262232316, December.
    7. Sydney Ludvigson & Charles Steindel & Martin Lettau, 2002. "Monetary policy transmission through the consumption-wealth channel," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue May, pages 117-133.
    8. Mansor H. Ibrahim, 2005. "Sectoral Effects of Monetary Policy: Evidence from Malaysia," Asian Economic Journal, East Asian Economic Association, East Asian Economic Association, vol. 19(1), pages 83-102, 03.
    9. Andrea Brischetto & Graham Voss, 1999. "A Structural Vector Autoregression Model of Monetary Policy in Australia," RBA Research Discussion Papers, Reserve Bank of Australia rdp1999-11, Reserve Bank of Australia.
    10. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198774501, October.
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    Cited by:
    1. Jiang, Jiadan & Kim, David, 2013. "Exchange rate pass-through to inflation in China," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 900-912.
    2. Muhammad Naveed Tahir, 2012. "Relative Importance of Monetary Transmission Channels in Inflation Targeting Emerging Economies," EcoMod2012, EcoMod 4092, EcoMod.
    3. Raditya Sukmana & Salina H. Kassim, 2010. "Roles of the Islamic banks in the monetary transmission process in Malaysia," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, Emerald Group Publishing, vol. 3(1), pages 7-19, April.

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