Testing the Effectiveness of Monetary Policy in Malaysia Using Alternative Monetary Aggregation
AbstractThe capability of monetary aggregates to generate stable link with fundamental economic indicators verifies the effectiveness of monetary targeting. However, traditional monetary aggregates have become flawed when financial reforms take place. As official monetary aggregates fail to maintain stable link with crucial economic indicators in Malaysia, monetary targeting has been substituted by interest rate targeting. Therefore, Divisia monetary aggregates, which are considered more superior than the simple sum counterparts are used in the investigation for the case of Malaysia. The findings imply that Divisia M2 money demand is stable and is capable to generate appropriate coefficients with correct signs for the variables included. Thus, Divisia money has shed new light on the usefulness of monetary targeting in formulating monetary policy in Malaysia.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 10568.
Date of creation: Jun 2008
Date of revision:
Divisia money; Money demand; Error-correction model;
Other versions of this item:
- Choi-Meng Leong & Chin-Hong Puah & Shazali Abu Mansor & Evan Lau, 2010. "Testing the Effectiveness of Monetary Policy in Malaysia Using Alternative Monetary Aggregation," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 4(3), pages 321-338, August.
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-29 (All new papers)
- NEP-CBA-2008-09-29 (Central Banking)
- NEP-MAC-2008-09-29 (Macroeconomics)
- NEP-MON-2008-09-29 (Monetary Economics)
- NEP-SEA-2008-09-29 (South East Asia)
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