Malaysia's Central Bank Response Post 1997 Asian Financial Crisis
Taylor's Business Review ISSN: 2232-0172 Vol 4 Issue 1, February 2014 pp. 31-53
23 Pages Posted: 27 Sep 2014
Date Written: February 24, 2014
Abstract
This article explores Malaysia’s central bank, Bank Negara Malaysia’s (BNM) response to the 1997 Asian Finance Crisis. The article begins with the debate on the endogeneity of money and causality tests of money supply, liquidity and GDP using Malaysian data for the period 1982-2012. As money supply is endogenously determined by GDP and liquidity, BNM has shifted Malaysia’s monetary regimes – from monetary targeting to interest rate. An unstable demand for money, financial reforms and liberalisation of financial markets post 1997 are some factors which made monetary targeting difficult to achieve. BNM’s pursuit of development goals in enhancing efficient financial markets will contribute to a more effective interest rate transmission mechanism in the longer term.
Keywords: Monetary transmission mechanism, endogeneity, causality, cointegration, trivariate, Tinbergen, impossible trinity
JEL Classification: C22, E51, E52, E58
Suggested Citation: Suggested Citation