Impact of China on Malaysian Economy: Empirical Evidence of Sign-Restricted Structural Vector Autoregression (SVAR) Model

Zaidi, Mohd Azlan Shah; Karim, Zulkefly Abdul; Zulkefli, Zurina Kefeli @

doi:10.21315/aamjaf2018.14.2.2

Cited by 6 publications

(15 citation statements)

References 30 publications

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“…The result likewise contradicts that of Mohamad and Said (2016) where the output of the United States is found to have a positive and significant effect on Malaysian consumption. A similar result is however observed by Zaidi et al (2018) who observe a decline in the Malaysian domestic output as a result of economic expansion in China. The decline in consumption is accompanied by a decrease in private investment arising from a positive shock to the output of the country's trading partners.…”

Section: Response Of Consumption and Investment To External Shockssupporting

confidence: 79%

External shocks and output composition: evidence from Nigeria

Yinusa

2020

JEAS

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PurposeThe study investigates the impact of external shocks on output composition (consumption and investment) in Nigeria for the period 1981:Q1– 2018:Q4. Trade-weighted variables from the country's five major trading partners are constructed to capture the impact.Design/methodology/approachThe study employs a block exogeneity open economy structural vector autoregressive (SVAR) analysis in studying the stated relationship.FindingsThe study reveals that external shocks significantly affect consumption and investment in Nigeria. Results from the structural impulse response function suggest that foreign output, real effective exchange rate and foreign interest rate have significant negative effects on consumption and investment. Specifically, results from error variance decomposition show that foreign inflation and real effective exchange rate shocks are major drivers of fluctuations in consumption and investment in Nigeria. Interestingly, the study finds that oil price shock accounts for minor variations in consumption and investment in Nigeria.Research limitations/implicationsThe findings suggest that consumption and investment in Nigeria are substantially and largely driven by external shocks.Practical implicationsThere is need for the monetary authority and the Nigerian government to design appropriate policies to stabilise the naira and salvage the country's exchange rate from unexpected large swings so as to reduce the vulnerability of the economy to external shocks.Originality/valuePrevious studies on external shocks have concentrated on the impact of external shocks on aggregate variables such as output and inflation, while few studies on external shocks in Nigeria capture external shocks through single-country data. This study differs from previous similar studies in Nigeria in two ways. First, the study examines the impact of external shocks on output composition such as consumption and investment. Second, the study captures the impact of external shocks on the two components of gross domestic product (GDP) by constructing trade-weighted variables from Nigeria's five major trading partners.

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Section: Response Of Consumption and Investment To External Shockssupporting

confidence: 79%

External shocks and output composition: evidence from Nigeria

Yinusa

2020

JEAS

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“…Most of the previous empirical studies have identified monetary policy shocks using a SVAR approach. Examples of this study are Bagliano and Favero (1998), Bagliano et al (1999), Christiano et al (1999Christiano et al ( , 2005, Zaidi and Fisher (2010), Zaidi and Karim (2014), and more recently Zaidi et al (2018) and Basa et al (2019). Another popular methods to identify monetary policy shocks are through factor-augmented VAR (Fernald et al, 2014) for a case of China, panel VAR approach (Matousek et al, 2019 for the panel study of a bank in Japan, and dynamic stochastic general equilibrium approach by Yang et al (2019) for the study of the implications of the presence of shadow banking for economic activity and the effectiveness of monetary policy in China.…”

Section: Measuring Monetary Policy Effectivenessmentioning

confidence: 92%

“…For example, in Malaysia context, the previous studies that have supported finance-led growth nexus in Malaysia are Ansari (2002), Ang and McKibbin (2007), Ang (2008) and Karim et al (2008). In Malaysia, the previous studies that have examined the role of monetary policy on economic activity can be found in Azali andMatthews (1999), Ibrahim (2005), Tang (2006), and Zaidi et al (2018) which has supported the real effects of monetary policy. In Singapore, studies that have examined the finance-growth nexus can be found in Murinde and Eng (1994), Mukhopadhyay et al (2011) and Rousseau and Vuthipadadorn (2005).…”

Section: Literature Reviewmentioning

confidence: 97%

The relationship between financial development and effectiveness of monetary policy: new evidence from ASEAN-3 countries

Karim

Basa²,

Karim

2021

JFEP

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Purpose This paper aims to investigate the relationship between financial development (FD) and monetary policy effectiveness (MPE) on output and inflation in ASEAN-3 countries (Singapore, Malaysia and the Philippines). Design/methodology/approach This study uses an open economy structural vector autoregressive model to generate MPE. Then, an autoregressive distributed lagged (ARDL) model is used to analyze the effect of FD on MPE across countries. Findings The findings revealed that FD plays a different role in MPE across countries. In Malaysia, a more developed financial system tends to reduce the MPE on output, whereas in Singapore, results show that the more developed financial system (stock market capitalization) tends to increase MPE on output. However, in the Philippines, the main results show that the effect of FD (liquid liabilities) upon MPE on output is depending on the policy variable (interest rates or money supply). Originality/value This paper fills this gap by providing the first study of ASEAN-3 countries in examining how effective is a monetary policy in response to the development of the financial market across the country. Second, this paper considers two FD indicators, namely, the banking sector and capital market development in investigating its effect on MPE on output and inflation. Third, the authors construct the MPE in each country using a structural (identified) VAR model by aggregating the response of output growth and inflation rate on monetary policy changes (interest rate and money supply) using impulse–response function. Regarding this, the results of this study provide new empirical evidence and insight into the long debate on the relationship between FD and the MPE.

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“…Domestic variables and gross domestic product (GDP) were assumed to respond contemporaneously with world oil price, whereas inflation (INFL) was the contemporaneous response to the movement of WOP and domestic output (GDP). This way of identifying assumption was used by Kim and Roubini (2000), Berkelmans (2005), Karim et al (2013) for the case of Malaysia, and Zaidi et al (2018) for the case of China's effect on the Malaysian economy.…”

Section: Mpementioning

confidence: 99%

“…Money supply (M3) was assumed to respond contemporaneously to domestic output, inflation, and interest rates. This approach in identifying assumption was used by Zaidi et al (2013), Karim et al (2013) and Zaidi et al (2018), and Karim and Karim (2014). Since exchange rate (REER) was considered a fast-moving variable, it was thus assumed that REER also responded contemporaneously to all variables in the system.…”

Section: Mpementioning

confidence: 99%

Financial Development and the Effectiveness of Monetary Policy: New Evidence from Malaysia

Basa

Karim

Zaidi

2019

AAMJ

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This paper examines the relationship between financial development (FD) and the monetary policy effectiveness (MPE) in Malaysia. Two indicators designate the level of FD, namely liquid liabilities and stock market capitalisation, and gross fixed capital formation are used in estimating the determinants of MPE which is generated using structural vector auto regressive (SVAR) in an open economy approach. Accordingly, an autoregressive distributed lag (ARDL) model is used in examining the effects of FD and gross fixed capital formation on MPE. Using a yearly time series data spanning from 1991 to 2016, the results revealed that there is a cointegration between FD and gross fixed capital formation on MPE. Interestingly, FD has a negatively significant effect on MPE on output and inflation, which indicates that a more developed financial system has hindered the effectiveness of the monetary policy.

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Impact of China on Malaysian Economy: Empirical Evidence of Sign-Restricted Structural Vector Autoregression (SVAR) Model

Cited by 6 publications

References 30 publications

External shocks and output composition: evidence from Nigeria

External shocks and output composition: evidence from Nigeria

The relationship between financial development and effectiveness of monetary policy: new evidence from ASEAN-3 countries

Financial Development and the Effectiveness of Monetary Policy: New Evidence from Malaysia

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