The Exchange Rates and the Malaysia Economy

Low, Zhen Wei (2025) The Exchange Rates and the Malaysia Economy. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

Text Low Zhen Wei_Full Report.pdf Restricted to Registered users only Download (1MB)

Abstract

Over the decades, policymakers and economists from Malaysia have examined the economic factors that influence exchange rates. One of the most talked about research subjects is the relationship between exchange rates and Gross Domestic Product. There are many outcomes, including both favorable and unfavorable effects as well as unknown effects. This essay aims to investigate the economic influences on Malaysia's exchange rate from 1997 to 2022. The exchange rate is a dependent variable, whereas Gross Domestic Product, inflation rate, and unemployment rate are independent variables. The Granger Causality test, the Johansen-Juselius co-integration test, and the Vector Error Correction Model (VECM) were used to identify the economic factors influencing the exchange rate in Malaysia. The empirical result shows that there is a long run relationship among the variables. In this study, there are few unilateral and bilateral relationships among the variables. In this study, it is suggested that the government should reduce dependence on a single industry, control the country's fluctuating exchange rates and reducing demand for domestically produced goods and services in international markets in Malaysia. Keywords: Exchange Rate, Vector Error Correction Model (VECM), Johansen Juselius co-integration test, Granger Causality test