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On the predictive power of monetary exchange rate model: the case of the Malaysian Ringgit/US Dollar rate.


Citation

Baharumshah, Ahmad Zubaidi and Mohd, Siti Hamizah and Sung, Ahn (2009) On the predictive power of monetary exchange rate model: the case of the Malaysian Ringgit/US Dollar rate. Applied Economics, 41 (14). pp. 1761-1770. ISSN 1466–4283

Abstract / Synopsis

The predictive power of the monetary model for the Malaysian ringgit/US dollar (RM/USD) rate is analysed using quarterly data ending in 2006:Q3. We find compelling evidence of a long-run relationship between exchange rates and the economic fundamental determinant. Macroeconomic factors systematically affect the long-run movement of the RM/USD rate. Additionally, the RM/USD rate was overvalued by about 10% severalquarters before the 1997 crisis; after the crisis, rates fluctuated close to the equilibrium value. The out-of-sample forecasts demonstrate that the monetary model outperforms the naı¨ve random walk model. The monetary and Purchasing Power Parity (PPP) models do well at the four to eight quarters horizon.


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Additional Metadata

Item Type: Article
Divisions: Faculty of Economics and Management
DOI Number: https://doi.org/10.1080/00036840902817771
Publisher: Taylor & Francis
Keywords: Exchange rate; US-Dollar; US Dollar; Malaysia.
Depositing User: Emelda Mohd Hamid
Date Deposited: 18 Oct 2013 11:19
Last Modified: 03 Sep 2015 09:14
Altmetrics: http://www.altmetric.com/details.php?domain=psasir.upm.edu.my&doi=10.1080/00036840902817771
URI: http://psasir.upm.edu.my/id/eprint/15926
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