UNCOVERING THE RELATIONSHIP BETWEEN BROAD MONEY AND THE RESPECTIVE MACROECONOMIC VARIABLES: QUANTITATIVE RESEARCH IN MALAYSIAN PERSPECTIVE
Asia Pacific Journal of Emerging Markets, Vol. 7, No. 2, 2023 ISSN: 2706-5634
Authors: Kuen Jian Lin, Vikneswaran Manual
ABSTRACT
A market’s broad money (BRM) can vary according to a country’s monetary policy. Monetary policymakers always investigate the relationship between broad money and other macroeconomic variables to understand the economic insight of a country and then implement the best monetary policy that suits the country. Prior studies have identified a few macroeconomic variables, namely consumer price index (CPI), real interest rate (RIR), government final consumption (GFC), net foreign asset (NFA), and unemployment rate (UER), that can affect broad money circulation in a market. By utilizing time series data range from 1991 to 2019, this study has employed Multiple Linear Regression (MLR) Analysis, Augmented Dickey-Fuller unit root assessment, Johansen Cointegration test, Vector Error Correction Model, and Wald Test to evaluate the direction of impact, short-run and long-run causality effects between the variables. This study reveals that no macroeconomic variables have either short run or long-run causality effects.
INTRODUCTION
After Malaysia was announced to be an independent country on 31 August 1957, Malaysia underwent significant changes in social, cultural, political, as well as economic (Sundaram & Wee, 2013). Early in the 1960s, rubber and tin production and export drove the majority of economic growth in Malaysia (Ken, 1965). However, the Malaysian government has considered the long-term growth of Malaysia’s economy. Thus, action to diversify Malaysia’s economy is necessary to empower Malaysia’s economic growth in the long term. Therefore, over the last few decades, Malaysia shifted its focus to the manufacturing industry (Sundaram & Wee, 2013). Money supply has assumed greater significance (Chaitip et al., 2015) as Malaysia’s economy has shifted from an agricultural base to one based on services and manufacturing. Some forces propelling Malaysia’s economic development can be better understood by examining how broad money interacts with other macroeconomic variables. Money is a commodity or tangible asset generally recognized and received by the public as a means of exchanging goods and services, and it is always ready to be used in payment transactions (Davies, 2010).
Keywords: Broad Money; Interest Rate; Consumer Price Index; Consumption
References
Reference to this paper should be made as follows: Lin, K. J. & Manual, V. (2023). Uncovering the relationship between Broad Money and the respective Macroeconomic Variables: Quantitative research in Malaysian perspective. Asia Pacific Journal of Emerging Markets, 7(2), 153-172.