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The Relative Importance Of Monetary Policy Transmission Channels In Malaysia

  • Hsiao Chink Tang

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    This paper investigates the relative strength of four monetary policy transmission channels (exchange rate, asset price, interest rate and credit) in Malaysia using a 12-variable open economy VAR model. By comparing the baseline impulse response with the constrained impulse response where a particular channel is being switched off, the interest rate channel is found to be the most important in influencing output and inflation in the horizon of about two years, and the credit channel beyond that. The asset price channel is also relevant in the shorter-horizon, more so than the exchange rate channel, particularly in influencing output. For inflation, the exchange rate channel is more relevant than the asset price channel.

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    File URL: http://cbe.anu.edu.au/research/papers/camawpapers/Papers/2006/Tang_232006.pdf
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    Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2006-23.

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    Length: 32 pages
    Date of creation: Aug 2006
    Date of revision:
    Handle: RePEc:een:camaaa:2006-23
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    1. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    2. Mansor H. Ibrahim, 2005. "Sectoral Effects of Monetary Policy: Evidence from Malaysia," Asian Economic Journal, East Asian Economic Association, vol. 19(1), pages 83-102, 03.
    3. Tilak Abeysinghe & Gulasekaran Rajaguru, 2003. "Quarterly Real GDP Estimates for China and ASEAN4 with a Forecast Evaluation," Departmental Working Papers wp0404, National University of Singapore, Department of Economics.
    4. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, June.
    5. Domac, Ilker, 1999. "The distributional consequences of monetary policy : evidence from Malaysia," Policy Research Working Paper Series 2170, The World Bank.
    6. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
    7. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
    8. M. Azali & K. G. P. Matthews, 1999. "Money-income and credit-income relationships during the pre- and the post-liberalization periods: evidence from Malaysia," Applied Economics, Taylor & Francis Journals, vol. 31(10), pages 1161-1170.
    9. Sydney Ludvigson & Charles Steindel & Martin Lettau, 2002. "Monetary policy transmission through the consumption-wealth channel," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 117-133.
    10. Andrea Brischetto & Graham Voss, 1999. "A Structural Vector Autoregression Model of Monetary Policy in Australia," RBA Research Discussion Papers rdp1999-11, Reserve Bank of Australia.
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