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Is inflation always a monetary phenomenon in Malaysia?

By Chor Foon Tang

Abstract

The purpose of this study is to empirically re-investigate the money-prices nexus for Malaysia through the cointegration and causality techniques. This study covered the monthly data from 1971:01 to 2008:03. The Johansen cointegration test suggests that the variables are cointegrated. Furthermore, the MWALD test shows a unidirectional causal relationship run from money supply (M2) to aggregate prices, meaning that only the monetarist’s view exist in the Malaysian economy. However, the time-varying causality tests indicate that inflation is not always a monetary phenomenon in Malaysia. Therefore, the contractionary monetary policy may not an effective instrument in managing inflationary behaviour in Malaysia.

Topics: E31 - Price Level; Inflation; Deflation, E51 - Money Supply; Credit; Money Multipliers, C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
Year: 2008
OAI identifier: oai:mpra.ub.uni-muenchen.de:19778

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