The Impact of Monetary Policy on Economic Growth in Malaysia

Teng, Wen Geng (2025) The Impact of Monetary Policy on Economic Growth in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study investigates the impact of monetary policy, investment, and innovation on Malaysia’s economic growth, using the Autoregressive Distributed Lag (ARDL) model to explore short-run and long-run relationships with time-series data from 1995 to 2020. The findings reveal a significant positive long-run relationship between monetary policy and investment with economic growth, underscoring their roles in fostering macroeconomic stability and capital accumulation. Conversely, innovation exhibits a negative long-run impact, attributed to inefficiencies in patent commercialization and weak industry-academia collaboration. Granger causality tests indicate that economic growth and investment drive innovation, while innovation influences monetary policy. Variance decomposition and impulse response analyses show that monetary policy’s influence on economic growth strengthens over time, underscoring its pivotal role in sustaining Malaysia’s economic stability. Policymakers are urged to improve monetary policy transmission mechanisms, streamline capital project approvals, and strengthen industry-academia collaboration to support sustainable growth. This study enriches the literature by offering valuable insights into how monetary policy shapes economic growth in an emerging economy like Malaysia, providing actionable recommendations for policymakers.