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An empirical analysis of Malaysian ringgit equilibrium exchange rate and misalignment

Mohd Sidek, Noor Zahirah and Yusoff, Mohammed (2009) An empirical analysis of Malaysian ringgit equilibrium exchange rate and misalignment. Global Economy and Finance Journal, 2 (2). pp. 104-126.

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Abstract

Following the reinstatement to managed floating exchange rate regime in July 2005, the real effective exchange rate (REER) of Malaysian ringgit (RM) has been fluctuating, albeit, slightly, which raises the question whether the current trend is consistent with the economic fundamentals. This paper attempts to ascertain the degree of misalignment of the ringgit by estimating the long run equilibrium real effective exchange rate of the currency. Based on Johansen vector cointegration technique, we have identified productivity, government consumption expenditure, and trade openness as important determinants of the ringgit long run equilibrium value. Results suggest that the ringgit was persistently overvalued prior to the 1997 crisis. After the crisis, the ringgit fluctuates around its long run equilibrium and the misalignments are eliminated over a relatively short period.

Item Type: Article (Journal)
Additional Information: 4178/549
Uncontrolled Keywords: Malaysian Ringgit
Subjects: H Social Sciences > HG Finance > HG201 Money
H Social Sciences > HG Finance > HG201 Money

H Social Sciences > HG Finance > HG3810 Foreign exchange
Kulliyyahs/Centres/Divisions/Institutes: Kulliyyah of Economics and Management Sciences
Depositing User: Professor Mohammed Yusoff
Date Deposited: 24 Jun 2011 09:57
Last Modified: 16 Jan 2012 15:43
URI: http://irep.iium.edu.my/id/eprint/549

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