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MACROECONOMIC VARIABLES, EXCHANGE RATE AND STOCK PRICE: A MALAYSIAN PERSPECTIVE

International Journal of Economics, Management and Accounting

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Title MACROECONOMIC VARIABLES, EXCHANGE RATE AND STOCK PRICE: A MALAYSIAN PERSPECTIVE
 
Creator Ibrahim, Mansor H.
Yusoff, Sulaiman Wan
 
Description The paper analyzes dynamic interactions among three macroeconomic variables (real output, price level, and money supply), exchange rate, and equity prices for the Malaysian case using time series techniques of cointegration and vector autoregression. In the analysis, we rely on variance decompositions and impulse-response functions to gauge the strength of the interactions among the variables. The Malaysian stock prices seem to be driven more by changes in domestic factors, particularly money supply. Specifically, we note that money supply exerts a positive effect on the stock prices in the short run. However, money supply and stock prices are negatively associated in the long run. We also observe the negative effects of depreciation shocks on stock prices. Other selected notable results are: the stock prices contain valuable information for future variations in macroeconomic variables especially the price level; currency depreciation is both contractionary and inflationary; the Malaysian monetary authorities seem to focus mainly on stabilizing the exchange rate; and the money supply seems to be pro-cyclical and inflationary. One important policy implication is that the monetary authorities should be very cautious in implementing exchange rate and monetary policies as they may have adverse repercussions on the Malaysian financial market.JEL classification: E44, G15Key words: Stock price behavior, Macroeconomic variables, Vector autoregression
 
Publisher Kulliyyah of Economics and Management Sciences
 
Date 2013-02-27
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/70
 
Source International Journal of Economics, Management and Accounting; Vol 9 No 2 (2001)
2462-1420
 
Language eng
 
Relation http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/70/53