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Interest Rate Determination and the Effect of Asian Financial Crisis in Malaysia

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  • Mahyudin Ahmad
  • Mohd Zaini Abd Karim

Abstract

: This paper investigates the importance of external factors in the domestic interest rate determination of Malaysia and measures the Malaysian financial market openness and domestic speed of adjustment to changes in foreign factors by capturing the effects of the Asian Financial Crisis in 1997. To achieve the objective, Autoregressive Integrated Moving Average (ARIMA) forecast of the inflation rate and Ordinary Least Square (OLS) regression were estimated using quarterly data for the period 1990:Q3-2005:Q3. Results of the study indicate that external factors were dominant in the domestic interest rate determination in the pre-crisis period. However, in the post-crisis period, domestic variables appear to affect the most. In addition, in post-crisis period, Malaysian domestic market was found to be apparently less open with slower speed of foreign influence.

Suggested Citation

  • Mahyudin Ahmad & Mohd Zaini Abd Karim, 2011. "Interest Rate Determination and the Effect of Asian Financial Crisis in Malaysia," The IUP Journal of Applied Economics, IUP Publications, vol. 0(1), pages 37-54, January.
    • Handle: RePEc:icf:icfjae:v:10:y:2011:i:1:p:37-54
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    Cited by:

    1. Goh, Soo Khoon & McNown, Robert, 2015. "Examining the exchange rate regime–monetary policy autonomy nexus: Evidence from Malaysia," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 292-303.
    2. Biswajit Maitra, 2017. "Monetary and fiscal factors in nominal interest rate variations in Sri Lanka under a deregulated regime," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-17, December.
    3. Biswajit Maitra, 2018. "Determinants of Nominal Interest Rates in India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(1), pages 265-288, March.

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