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Structural VAR models for Malaysian monetary policy analysis during the pre- and post- 1997 Asian crisis periods

journal contribution
posted on 2023-05-17, 14:11 authored by Mala RaghavanMala Raghavan, Silvapulle, P, Athanasopoulos, G
This article conducts an in-depth investigation into building a Structural Vector Autoregression (SVAR) model and analysing the Malaysian monetary policy. Considerable attention is paid to: (i) the selection of foreign, policy and target variables; (ii) establish identifying restrictions and improve the estimates of impulse response functions; (iii) assess the importance of intermediate channels in transmitting monetary policy mechanism; and (iv) the way in which the 1997 Asian financial crisis affected the working of monetary policy. Malaysia is an interesting small open economy to study because, following this crisis, the government imposed capital and exchange rate control measures. The overall results suggest that the crisis and the subsequent major shift in the exchange rate regime have significantly affected the Malaysian ‘Black Box’. In the precrisis period, domestic variables appear to be more vulnerable to foreign monetary shocks. Further, the exchange rate played a significant role in transmitting the interest rate shocks, whereas credit and asset prices helped to propagate the money shock. In the post-crisis period however, asset prices play a more domineering role in intensifying the effects of both interest rate and money shocks on output, and the economy was insulated from foreign shocks.

History

Publication title

Applied Economics

Volume

44

Issue

29

Pagination

3841-3856

ISSN

0003-6846

Department/School

TSBE

Publisher

Routledge Taylor & Francis Ltd

Place of publication

4 Park Square, Milton Park, Abingdon, England, Oxfordshire, Ox14 4Rn

Rights statement

Copyright 2012 Taylor & Francis

Repository Status

  • Restricted

Socio-economic Objectives

Monetary policy

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