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THE REAL EXCHANGE RATE DETERMINATION: EMPIRICAL EVIDENCE FROM MALAYSIA

WONG HOCK TSEN

Universiti Malaysia Sabah, Jalan UMS, 88400 Kota Kinabalu, Sabah, Malaysia

https://doi.org/10.1142/S0217590814500167Cited by:1 (Source: Crossref)

Abstract

This study examines the real exchange rate determination in Malaysia. The result of the autoregressive distributed lag approach shows that an increase in the real interest rate differential, productivity differential, the real oil price or reserve differential will lead to an appreciation of the real exchange rate in the long run. The real oil price and reserve differential are important in the real exchange rate determination. The dynamic ordinary least squares (DOLS) estimator shows about the same conclusion of the autoregressive distributed lag approach. The result of the generalized forecast error variance decomposition shows that the real interest rate differential, productivity differential, the real oil price and reserve differential are generally important to the real exchange rate determination.

An early version of this paper has been presented in the 4th International Borneo Business Conference — Dawn of a New Horizon: Business and Economic Challenges, 13–15 December 2010, Park City Everly Hotel, Miri, Sarawak.

Keywords:

JEL: F31, F37, F10

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