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Tests of the different variants of the monetary model in a developing economy: Malaysian experience in the pre- and post-crisis periods

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  • Lee Chin
  • M. Azali
  • A. Mansur M. Masih

Abstract

This study examines the validity of four different variants of the monetary model of exchange rate determination for Malaysia covering both the pre- and post-crisis periods using the vector error-correction models. The findings demonstrate that for both periods, the variables used are cointegrated. Tests tend to suggest that of the four variants of monetary model, the sticky-price model holds in both periods and the flexible-price model holds only in the post-crisis period. The proportionality between the exchange rate and relative money does not hold in any period. The plotted actual and fitted exchange rates for both sub-samples show that the models are able to track the actual exchange rate trend quiet well.

Suggested Citation

  • Lee Chin & M. Azali & A. Mansur M. Masih, 2009. "Tests of the different variants of the monetary model in a developing economy: Malaysian experience in the pre- and post-crisis periods," Applied Economics, Taylor & Francis Journals, vol. 41(15), pages 1893-1902.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:15:p:1893-1902
    DOI: 10.1080/00036840601131797
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