The Relationship Between Debt Level and Exchange Rate in Malaysia.

Chong, Vic Kee (2019) The Relationship Between Debt Level and Exchange Rate in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

This paper investigates the long run and short run relationship between the exchange rate and debt level in Malaysia. Others variables such as external trade and eternal reserves are also taken into account for the times series data analysis. The quarterly data is employed and cover from 2009 quarter 1 to 2017 quarter 4. Vector Error Correction Model (VECM) is used to identify the long run relationship between exchange rate and external debt, external trade and eternal reserve. While the Wald test is used to define the short run relation among the variables whereas the granger causality test was adopted to examine the causality relationship among variables. The findings of the study shown that there are a positive long run relationship between exchange rate and external debt while negative long run relationship among exchange rate and external trade and external reserve. However the findings of this paper identify that there are absence of short run relation among the variables. The ganger causality test mentions that there are unilateral relationship form exchange rate to external trade and external reserve to external trade. Based on the findings of this paper, Malaysia government should take serious on the issue of debt level management as high debt causes Malaysia faces unstable economic condition.