Measuring the Effectiveness of Monetary Policy during a Recession: Evidence from Malaysia

Lee, Kah Kei (2023) Measuring the Effectiveness of Monetary Policy during a Recession: Evidence from Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study aims to examine the relationship between monetary policy and economic growth in Malaysia. This investigation used annual data from the World Bank related to Malaysia from 1985 to 2020 and applied the approach of autoregressive distributed lag to evaluate the impact of monetary policy on economic growth in Vietnam in the short and long run. The economic growth models based on the CobbDoulag equation and the Solow model. The results of the study showed that GDP in Maylasia is affected by the variables of monetary policy and having a positive relationship in the short and long term. These results suggest that increase in money supply (proxy for monetary policy) promote economic growth in Malaysia. As a matter of robustness, the same exercise was conducted with an alternative measure with interest rate as OPR is the only indicator for monetary policy stance of BNM. Our results show no major differences. This study also contributes to the area of economic growth research in Malaysia which it indicates that inflation and capital stock both significantly influence economic growth in Malaysia and having a positive relationship in the short and long term as well. The current study is still limited to small sample sizes and does not cover all indicators for analysis