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The impacts of monetary policy on consumption and investment: empirical evidence from selected countries in Southeast Asia

Author

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  • Zukarnain Zakaria

    (Universiti Teknologi Malaysia)

Abstract

This paper investigates the effectiveness of monetary policy in four major countries in Southeast Asia by using impulse-response functions within a vector error correction model (VECM) framework. The impacts of interest rate shock on two macroeconomic variables, investment and consumption have been analysed and compared based on the magnitude and the speed of adjustment. The findings show that the effectiveness of monetary policy differs not only between countries but also on the macroeconomics variable used in the analysis. Monetary policy was found more effective in influencing investment in the Philippines compared with Malaysia and Thailand, and the impacts are smallest in Indonesia. For consumption, the impacts are stronger in Thailand and smallest in the Philippines. The impacts of monetary policy on consumption are also less responsive compared with it impacts on investment.

Suggested Citation

  • Zukarnain Zakaria, 2007. "The impacts of monetary policy on consumption and investment: empirical evidence from selected countries in Southeast Asia," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 44(2), pages 85-97, December.
    • Handle: RePEc:phs:prejrn:v:44:y:2007:i:2:p:85-97
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    File URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/229/629
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    More about this item

    Keywords

    monetary policy; consumption; investment; impulse response;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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