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

• Main Authors: Lee, Chin, Azali, Mohamed, M. Masih, Abul Mansur
• Format: Article
• Language: English; English
• Published: Routledge 2009
• Online Access: http://psasir.upm.edu.my/id/eprint/17000/1/Tests%20Of%20The%20Different%20Variants%20Of%20The%20Monetary%20Model%20In%20A%20Developing%20Economy.pdf; http://psasir.upm.edu.my/id/eprint/17000/

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.