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Title: |
Dynamic Causal Chain of Money, Output, Interest Rate and Prices in
Malaysia: Evidence Based on Vector Error-Correction Modelling Analysis |
| Author: |
Tan, Hui Boon;
Baharumshah, Ahmad Zubaidi |
| Author
Affiliation: |
U Putra
Malaysia |
| Source: |
International Economic Journal, Spring 1999, v. 13, no. 1, pp. 103-93 |
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Publication Date: |
Spring 1999 |
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Abstract: |
The dynamic causal chain among money, real
output, interest rate, and inflation is reexamined in the context of a
small fast-growing economy using the recently developed techniques of
Johansen's multivariate cointegration analysis followed by vector
error-correction modelling, Granger causality, variance decompositions,
and impulse response functions. The results of the multivariate
cointegration tests suggested a stable long-run equalibrium relationship
exists among these macroeconomic variables. The short-run results based
on vector error-correction modelling, on the other hand, support the New
Keynesians' view that money is non-neutral, at least in the short-run.
It also indicates that monetary policy can contribute to the stability
of domestic prices. M1, among the various definitions of money stock,
has been identified as the most effective intermediate monetary target
to curb inflation. M3, in turn, has been suggested as the most
appropriate intermediate target to promote sustainable economic growth
with contained inflation. For this economy, the deviation of the
macroeconomic activity from its long-run equilibrium is adjusted through
changes in the money stock and prices. |
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