Transmission mechanism in a developing economy: does money or credit matter?

This book covers empirical and policy oriented studies. It contents provide a through exposition of economic theory to shed light on real issues in understanding a developing country economy. The book is structured in an easy reading manner that makes it ideal for all levels of researchers, especially for the postgraduate students who are researching in the applied macroeconomics area

ASEAN-5+3 AND US STOCK MARKETS INTERDEPENDENCE BEFORE, DURING AND AFTER ASIAN FINANCIAL CRISIS

The issues of international stock markets linkages had been investigated over the time. Since the Asian financial crisis in 1997, many economists are concerned about the relationship between Asian stock markets and others in the world. This paper is conducted to examine the linkages between ASEAN-5+3 namely Malaysia, Singapore, the Philippines, Thailand, Indonesia, China, Japan and Korea and US stock markets. The data consists of weekly stock indices data. The total samples are separated into three subperiods. First period is pre-crisis period spanning from January 1990 to June 1997. Second period is during-crisis period spanning from July 1997 to June 1998. Third period is post-crisis period spanning from July 1998 to May 2007. All the indices applied are expressed in local currencies. The empirical analysis begins with testing the stationarity properties of the data. All the countries are found to be stationary at first difference except for Japan for pre-crisis period. Next, cointegration test is employed to test the long-run stationary relationship among the stock markets. The number of significant cointegrating vector is higher during-crisis compare to other periods whereas the same number of cointegrating vector is found before and after crisis. Granger-causality based on VECM showed that Thailand is exogenous whereby Malaysia is the most endogenous at before and during the crisis. After the crisis, US become dominant compare to the other countries. In conclusion, we found that ASEAN- 5+3 and US stock markets are interdependence during crisis and post-crisis periods and the impact of US stock market is effective in ASEAN-5+3 stock markets only for pre and during-crisis periodsStock markets, Cointegration, Granger-causality, ASEAN

Financial integration among ASEAN+3 countries : evidence from exchange rates convergence

As the economies of Asian have moved towards closer economic ties in recent years, the establishment of regional exchange rate arrangement has become an important regional policy concern. A study by the Asian Development Bank forecast that Asian will be the world's largest economy by 2050. Hence, it is not reasonable for Asian to continuously depend on U.S. dollar. Asian must have its own currency and must responsible for its own financial stability. Regional cooperation (including integration) is critical for Asia’s march toward prosperity and facing vulnerabilities to global shocks. Financial integration in ASEAN+3 is assessed in this paper by examining the time-series stochastic behaviour and cointegration in a set of eight ASEAN+3 currencies. The findings imply that not all of the ASEAN+3 countries are financial integrated during the recent float. This finding provided weak support upon formation of regional monetary and exchange rate arrangement in Asia

Broad money demand and financial liberalization in Malaysia: an application of the nonlinear learning function and error-correction models

This paper attempts to model the effects of financial liberalization and innovations on the demand for broad money in Malaysia. The nonlinear learning function and error-correction mechanism model were utilized. The results of encompassing tests and dynamic (ex post) simulation confirm the error-correction as the parsimonious specification. The augmented error-correction model with nonlinear interacted variables is unable to detect the effects of financial liberalization on Malaysian broad money demand

Feldstein-Horioka puzzle and international capital mobility in high income countries: a pool mean group approach

This paper reexamines the status of international capital mobility under the Feldstein-Horioka (1980) hypothesis by comparing the results from the OECD and non-OECD high income categories. Data on savings and investment ratios of 21 OECD and 17 non-OECD countries were analyzed using the dynamic heterogeneous panel estimators of Pooled Mean Group (PMG), Mean Group (MG) and Dynamic Fixed Effects (DFE). Based on the series of Hausman post-estimation test, result from the PMG is upheld. The saving-retention coefficient, showing the level of international capital mobility, reads 0.89, 0.93 and 0.16 for the high-income group, OECD category and non-OECD category respectively. This suggests lower capital mobility in high-income as a whole and OECD countries, and higher capital mobility in the non-OECD countries. The contradictory findings confirmed that the Feldstein-Horioka saving-retention coefficient is unlikely, a viable option of measuring cross-border capital mobility. Further researches therefore need to re-observe the qualification of saving-retention coefficient in explaining international capital mobility

Is MYR/USD a random walk? New evidence from the BDS test

This study empirically investigates the daily MYR/USD exchange rate return series in the light of the random walk hypothesis. Recent breakthroughs pertaining to non-linear dynamics and chaos, coupled with the rapid acceleration in computer power, have made it possible to more robustly test for the random walk in financial and economic data. This study uses a new non-linear statistical test, namely the Brock-Dechert-Scheinkman (BDS) test to examine whether the MYR/USD exchange rate return series are random walk with the property of being independent and identically distributed. The results overwhelmingly reject the hypothesis that the MYR/USD data examined in this study are random, independent and identically distributed since some cycles or patterns show up more frequently than would be expected in a true random series. These results may have implications for the weak form market efficiency, if the underlying structure can be profitably exploitable, which remains an avenue for further research

Testing long-run neutrality of money in a developing economy

The purpose of the present paper is to determine the long-run neutrality of money in a developing economy - Malaysia - using the Fisher and Seater (1993) approach. Since most of the earlier studies on long-run neutrality (LRN) have been tested on the developed countries, the present study adds to the current literature by providing evidence on LRN from the perspective of a developing country. Furthermore, in this study, not only we test LRN on the aggregate national output, but we also test LRN using disaggregate output. These disaggregate output are namely, the output of agriculture, manufacturing and services sectors. Generally, we found that narrow money M1 does not matter in Malaysia for the sample period, 1973: 1 to 1999:4. The output data at both aggregate and disaggregate sectors support the long-run neutrality of money in Malaysia. This implies that permanent changes in narrow money do not lead to changes in real output. This would suggest that the growth of money supply M1 is not the prime mover for the Malaysia's economic growth during the period under study

Asymmetric effects of monetary policy in ASEAN-4 economies

By employing the Markov-switching model, this study examines if real output asymmetrically responds to monetary policy shocks in Indonesia, Malaysia, the Philippines and Thailand. This study provides evidence that a contractionary monetary policy has a larger absolute impact than an expansionary policy. Moreover, the effects of an expansionary policy are gradually mitigated when the inflation rate is increasing (except in Malaysia). These findings imply that monetary authorities must consider not only the behaviour of the inflation process but also the fact that not all economies can react in a similar way to expansionary and contractionary monetary policy shocks

Yen synchronization among ASEAN-5, Korea and Japan: evidence from the multivariate GARCH model

In this study, we aim to investigate whether ASEAN-5 and the Korean currency regimes are ready to use Japanese Yen as an Asian future Exchange Rate Mechanism (AERM) by using Multivariate GARCH models. Overall findings show that Singapore, Thailand, and Korea are the potential countries that ready to adopt Japanese Yen as an AERM. However, Malaysian Ringgit, Indonesian Rupiah and the Philippines Peso are weakly correlated with Japanese Yen. This indicates that the East Asian free trade agreement such as ASEAN-10+3 and EAFTA does not enough to promote these low dynamic correlation countries (Malaysia, Indonesia, and the Philippines). Perhaps, the appropriate way to begin the AERM is to form a group of currency system which highly correlated with Japanese Yen (e.g. Singapore, Thailand, and Korea) whiles others could have a commitment to adopt Japanese Yen as a regional trade-invoicing currency in order to increase the level of Yen synchronization correlation

International reserves, current account imbalance and external debt : evidence from Malaysia.

The purpose of the study is to analyze both the short-run and long-run demand for international reserves in Malaysia for the period 1970-2004. The autoregressive distributed lag (ARDL) bounds testing approach proposed by Pesaran, Shin, and Smith (2001) is used to test for the existence of cointegration relationship between the demand for international reserves and its determinants. The empirical results suggest that current account balance and short-term external debt significantly affect the demand for international reserves both in the long run and short run