The Effectiveness of Monetary Policy on the Economic Growth: a comparison between Malaysia and Singapore

Chan, Pey Li (2021) The Effectiveness of Monetary Policy on the Economic Growth: a comparison between Malaysia and Singapore. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

The purpose of this study is to investigate and compare the impact of the monetary policy on the economic growth of Malaysia and Singapore. This paper also attempts to study the impact of the money supply on the economic growth in long and short run, the effectiveness of the exchange rate, interest rate, inflation on the economic growth in long run and short run and the most important variable for the economic growth by using the time series data from 1996 quarter one (1) to 2018 quarter four (4). This study has adopted Real Gross Domestic Product (RGDP) as the dependent variable, while money supply 2 (M2), real effective exchange rate (REER), inflation rate (CPI) and real interest rate (RIR) as the independent variables. Towards these purposes, this study has employed Augmented Dickey Fuller (ADF) and Phillips Perron (PP) as the unit root tests. To test the cointegration test, Johensan and Juselius (JJ) Test was employed. Meanwhile, Vector Error Correction Estimates and Granger Causality Test were both used to examine the relation of the variables in long and short run. The estimated results reveal that the money supply is positively related to the economic growth, exchange rate is negatively related to economic growth, yet inflation is insignificant for both countries in the long run. However, the interest rate has a negative relationship with the economic growth of Malaysia, while the interest rate has a positive relationship with the economic growth of Singapore in the long run. Lastly, the interest rate and the Real GDP has a short run relationship in Malaysia while, there is a short run relationship between exchange rate and Real GDP in Singapore.