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Financial Liberalization, Monetary Growth Variability and the Changing Characteristics of Money Velocity in Malaysia

Author

Listed:
  • Chee-Keong Choong
  • Siong-Hook Law
  • Wai-Ching Poon
  • Zulkornain Yusop

Abstract

Financial liberalization might be expected to have caused onetime shifts in money velocity or changes in the responsiveness of money demand to changes in incomes and interest rates. This study tends to examine the impact of financial liberalization on the money growth variability and money velocity in Malaysia, using three monetary aggregates, namely M1, M2 and M3. The estimated results based on Granger causality tests indicated that Friedman hypothesis is robust in the Malaysian economy. Applying bound test proposed by Pesaran et al. (2001), we found that financial liberalization process has incurred uncertainty on the movements of money velocities (especially M1 and M2) that is, velocity of monetary aggregates has declined during the liberalization process. Therefore, we concluded that the financial liberalization process has created high variability of monetary growth and changed the characteristics of velocity of money in Malaysia.

Suggested Citation

  • Chee-Keong Choong & Siong-Hook Law & Wai-Ching Poon & Zulkornain Yusop, 2004. "Financial Liberalization, Monetary Growth Variability and the Changing Characteristics of Money Velocity in Malaysia," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 7-23, August.
    • Handle: RePEc:icf:icfjmo:v:02:y:2004:i:3:p:7-23
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