Macroeconomic Variables, Exchange Rate And Stock Price: A Malaysian Perspective
The paper analyzes dynamic interactions among three macroeconomic variables (real output, price level, and money supply), exchange rate, and equity prices for the Malaysian case using time series techniques of cointegration and vector autoregression. In the analysis, we rely on variance decompositions and impulse-response functions to gauge the strength of the interactions among the variables. The Malaysian stock prices seem to be driven more by changes in domestic factors, particularly money supply. Specifically, we note that money supply exerts a positive effect on the stock prices in the short run. However, money supply and stock prices are negatively associated in the long run. We also observe the negative effects of depreciation shocks on stock prices. Other selected notable results are: the stock prices contain valuable information for future variations in macroeconomic variables especially the price level; currency depreciation is both contractionary and inflationary; the Malaysian monetary authorities seem to focus mainly on stabilizing the exchange rate; and the money supply seems to be pro-cyclical and inflationary. One important policy implication is that the monetary authorities should be very cautious in implementing exchange rate and monetary policies as they may have adverse repercussions on the Malaysian financial market.
Volume (Year): 9 (2001)
Issue (Month): 2 (December)
|Contact details of provider:|| Postal: Jalan Gombak, 53100 Kuala Lumpur|
Phone: (603) 6196 4770
Fax: (603) 6196 4850
Web page: http://www.iium.edu.my/enmjournal/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Khil, Jaeuk & Lee, Bong-Soo, 2000. "Are common stocks a good hedge against inflation? Evidence from the Pacific-rim countries," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 457-482, July.
- Haug, Alfred A., 1996.
"Tests for cointegration a Monte Carlo comparison,"
Journal of Econometrics,
Elsevier, vol. 71(1-2), pages 89-115.
- Haug, A.A., 1992. "Tests for Cointegration: A Monte Carlo Comparison," Papers 93-2, York (Canada) - Department of Economics.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February.
- Gjerde, Oystein & Saettem, Frode, 1999. "Causal relations among stock returns and macroeconomic variables in a small, open economy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(1), pages 61-74, January.
- Abul M.M. Masih & Rumi Masih, 1998. "Does money cause prices, or the other way around?: Multi-country econometric evidence including error-correction modelling from South-east Asia," Journal of Economic Studies, Emerald Group Publishing, vol. 25(3), pages 138-160, September.
- Lastrapes, William D. & Koray, Faik, 1990. "International transmission of aggregate shocks under fixed and flexible exchange rate regimes: United Kingdom, France, and Germany, 1959 to 1985," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 402-423, December.
- David A. Dickey & Dennis W. Jansen & Daniel L. Thornton, 1991. "A primer on cointegration with an application to money and income," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 58-78.
- Park, Kwangwoo & Ratti, Ronald A, 2000. "Real Activity, Inflation, Stock Returns, and Monetary Policy," The Financial Review, Eastern Finance Association, vol. 35(2), pages 59-77, May. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ije:journl:v9:y:2001:i:2:p:141-164. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gairuzazmi Mat Ghani)
If references are entirely missing, you can add them using this form.