Exchange rates in Singapore and Malaysia: Are they driven by the same fundamentals?

Ahmad Zubaidi Baharumshah, Ronald MacDonald, Siti Hamizah Mohd

    Research output: Contribution to journalArticle

    4 Citations (Scopus)

    Abstract

    This study examines the empirical link between exchange rates and fundamentals using the monetary model of the exchange rate for the Malaysian ringgit and the Singapore dollar against two key bilateral rates - the US dollar and the Japanese yen. We formally tested for the long-run monetary model of exchange rate determination and found several interesting results. First, a unique cointegrating relationship was identified, based on theory and data, which means that monetary variables and the exchange rate are connected. Second, we found that it is the exchange rate that adjusts to the long-run equilibrium after a shock and not the other way round. Finally, it is shown that the fundamentals-based model produced out-of-sample forecasts that can outperform a random walk model both in the medium and long terms.

    Original languageEnglish
    Pages (from-to)123-141
    Number of pages19
    JournalMalaysian Journal of Economic Studies
    Volume47
    Issue number2
    Publication statusPublished - Dec 2010

    Fingerprint

    Exchange rates
    Malaysia
    Singapore
    Long-run equilibrium
    Exchange rate determination
    Bilateral
    Random walk model
    Out-of-sample forecasting

    Keywords

    • Exchange rates
    • F41
    • Fundamentals
    • Out-of-sample forecasts JEL classification: F31

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

    Cite this

    Exchange rates in Singapore and Malaysia : Are they driven by the same fundamentals? / Baharumshah, Ahmad Zubaidi; MacDonald, Ronald; Mohd, Siti Hamizah.

    In: Malaysian Journal of Economic Studies, Vol. 47, No. 2, 12.2010, p. 123-141.

    Research output: Contribution to journalArticle

    Baharumshah, AZ, MacDonald, R & Mohd, SH 2010, 'Exchange rates in Singapore and Malaysia: Are they driven by the same fundamentals?', Malaysian Journal of Economic Studies, vol. 47, no. 2, pp. 123-141.
    Baharumshah, Ahmad Zubaidi ; MacDonald, Ronald ; Mohd, Siti Hamizah. / Exchange rates in Singapore and Malaysia : Are they driven by the same fundamentals?. In: Malaysian Journal of Economic Studies. 2010 ; Vol. 47, No. 2. pp. 123-141.
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