Financial Liberalization, Weighted Monetary Aggregates and Money Demand in Indonesia

This study investigates the significance of Divisia monetary aggregates in formulating the monetary policy in Indonesia. A money demand function has been constructed to compare the relative performance for Simple-sum M1 and M2 (SSM1 and SSM2) and Divisia M1 and M2 (DM1 and DM2) monetary aggregates. The econometrics testing procedures that have been utilized in the estimation include unit root test, cointegration test, Vector Error Correction Model (VECM), Granger causality test and residual test. Empirical findings indicate that only DM1 model yields credible result amongst all of the money demand models. The obtained coefficients for DM1 model are consistent with a prior theoretical expectation and carry plausible magnitudes. The DM1 model is satisfactory as proven by the diagnostic tests. Divisia monetary aggregates are proven not only theoretical superior but also empirical valid as useful measurement of money for the case of Indonesia. The central bank of Indonesia may consider using Divisia monetary aggregates as the policy variables in formulating monetary policy.Money Demand; Divisia Money; VECM

White-collar crime and stock return: Empirical study from announcement effect

White-collar crime continues to hit the headlines across Malaysia and it remains a serious issue influencing organizations globally. A share price event study is thus conducted on a group of public listed companies in Malaysia to examine the announcement effect of white-collar crime. The period of the study is from 1996 to 2010, covering both the Asian Financial Crisis in 1997/98 and the sub-prime mortgage crisis in 2008/09. Results indicate the existence of significant negative abnormal share price reaction on 10 trading days subsequent to the day of announcement. It means that the stock market in Malaysia is not efficient. However, it implies that the market possesses the power to discipline unethical companies as the shareholders drive down their value by disposing their stocks following the announcement.Share Price, Event Study; White-Collar Crime

Factors stimulating corporate crime in Malaysia

Building on the perception of both existing and potential investors in Kuching, Sarawak, this study aims to identify the factors that appear to stimulate corporate crime activity in organizations. A survey was carried out by distributing questionnaires to both types of investors selected on randomly basis. The findings reveal that corporate crime activities are mostly due to inadequate cash security practices, inadequate supervision as well as a lack of internal auditing. To minimize the effects of corporate crime on investors and organizations, managers should pay extra attention to these factors. On the other hand, future research within the context of corporate crime may consider the extent to which organizational crime can affect the shareholder value creation of organizations.Corporate Crime; Internal Control

On the Long-Run Monetary Neutrality: Evidence from the SEACEN Countries

This paper tests the long run neutrality (LRN) and long run superneutrality (LRSN) propositions using annual observation from 10 member countries of the South East Asian Central Banks (SEACEN) Research and Training Centre. The Fisher and Seater (1993) methodology is applied to do the task. Special attention has been given in identifying the number of unit root and cointegrating vector, as a meaningful LRN (LRSN) test is critically depends on such properties. Empirical results reveal that LRN can be deviated from the case of Asian developing economies. In particular, monetary expansion seems to have long run positive effect on real output in the economies of Indonesia, Taiwan and Thailand. However, LRSN is neither fail or not addressable in our study.Neutrality and superneutrality of money; sequential unit root test; SEACEN

Testing the Rational Expectations Hypothesis on the Retail Trade Sector Using Survey Data from Malaysia

The rational expectations hypothesis states that when people are expecting things to happen, using the available information, the predicted outcomes usually occur. This study utilized survey data provided by the Business Expectations Survey of Limited Companies to test whether forecasts of the Malaysian retail sector, based on gross revenue and capital expenditures, are rational. The empirical evidence illustrates that the decision-makers expectations in the retail sector are biased and too optimistic in forecasting gross revenue and capital expenditures.REH, Unbiasedness, Non-serial Correlation, Weak-form Efficiency

Outward FDI of Malaysia: An Empirical Examination from Macroeconomic Perspective

Outward FDI of Malaysia was nearly non-existent prior to 1970s. Nonetheless, recently Malaysia has not only been able to sustain FDI inflows position, but also emerged as the fifth largest investor among the developing economies in Asia region (UNTACD, 2005). This study aims to investigate the selected macroeconomic determinants of outward FDI of Malaysia, namely income, exchange rate and openness. The Johansen and Juselius cointegration test and the vector error correction model are applied in this study to analyze the quarterly data from 1991:Q1 to 2004:Q4. The findings verified that the outward FDI of Malaysia is determined by income, exchange rate and openness of the economy in both the short- and long-run.

Some Empirical Evidence on the Quantity Theoretic Proposition of Money in ASEAN-5

This study examines the international evidence on long-run neutrality (LRN) of money based on low frequency data from five emerging ASEAN economies, namely, Indonesia, Malaysia, the Philippines, Singapore, and Thailand, using a nonstructural reduced-form bivariate ARIMA model proposed by Fisher and Seater (1993). Empirical evidence shows that the classical proposition cannot be rejected with respect to real export except for Thailand. However, the LRN test results are not robust to changes in money supply in countries under study with respect to real output. The narrow monetary aggregate seems to have greater impact on Indonesia, Malaysia, and Thailand economic activities as compared to the other two countries.Long-run neutrality of money; ARIMA model; ASEAN

Testing Long-Run Neutrality of Money in Thirteen Asian Developing Countries

The long-run neutrality (LRN) proposition suggests that a permanent change in the money stock has no long-run consequences on the level of real output. Most of the empirical studies of the neutrality of money are focused on industrialised countries. The main objective of this study is to investigate the LRN of money on real output in thirteen Asian developing economies using a reduced-form ARIMA model developed by Fisher and Seater (1993). This study makes use of annual data for money supply (Ml and M2) and real GDP, which spans from 1950 to 1997. Consideration of two measures of money supply serves as a sensitivity analysis for the potential effects of different measures of money on real output. In this study, the sample countries include: Bangladesh, India, Indonesia, Malaysia, Myanmar, Nepal, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, and Thailand.This study uses cross-sectional data from the thirteen Asian countries to examine one of the monetary propositions, that is, changes in the money supply are not associated with the permanent changes in real output. Money (both Ml and M2) is said to have no influence on the movements of real output in the long run. For time series data, results of the unit root test suggest that LRN is testable in twelve of the thirteen countries and money is found to be neutral in nine of the twelve countries. This conclusion is robust whether Ml or M2 is used as the money measure. However, in three countries (Indonesia, South Korea and Taiwan), the LRN test outcomes are sensitive to the measure of money used. Only in India, both Ml and M2 are not long run neutral with respect to real output. Based on these results, LRN can be said to describe a general feature of the Asian developing economy. This indicates that money supply do not play an important role in influencing the long run real output movement. Therefore, both monetary aggregates probably are not useful policy instrument in the Asian countries. However, the narrow money supply might be treated as a useful policy instrument in some of the countries since it has the ability to influence the long-run movement of real output in these countries

THE IMPLICATIONS OF EMERGENCE OF CHINA TOWARDS ASEAN-5: FDI-GDP PERSPECTIVE

The relationship between Foreign Direct Investment (FDI) and Gross Domestic Products (GDP) had become the centre piece of recent researches in identifying the short run and long run implications between the two variables. Using the hypotheses of FDI led GDP and GDP led FDI as theoretical framework, this study intends to analyze the implications of the rise of China towards the ASEAN-5 countries, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand from the perspective of FDI and GDP. The cointegration and vector error correlation estimate test results showed that there is a significant positive long run relationship between FDI of China and GDP of ASEAN-5. However, we failed to detect any short run causal relationship among the variables under study.Cointegration; Granger causality; FDI; ASEAN-5

Survey Evidence on the Rationality of Business Expectations: Implications from the Malaysian Agricultural Sector

The rational expectations hypothesis (REH) serves as an appealing mechanism in forming expectations compared to that of extrapolative or adaptive frameworks because of its consistency with the basic principles of maximizing behavior. This argument is particularly true as the basic idea of REH maintains that expectations in an uncertain world are formed under assumptions where no systematic errors and information are fully utilized. However, empirical findings from the present study showed diverse evidence of rationality in business operational forecasts formed by Malaysian agriculture firms, as capital expenditure expectations were found to be irrational but gross revenue expectations were supportive of the REH proposition. This implies that the survey of business forecasts may not work well in reflecting the true business outlook, specifically in value-related operational forecasts, which in turn would directly influence investment decisions as well as the capital budgeting process.Rational Expectations Hypothesis; Unbiasedness Test; Non-serial Correlation Test; Weak-form Efficiency Test