Money Supply Process in Malaysia
The aim of this study is to examine and understand the money supply process in Malaysia since an understanding of this process is very useful not only to monetary authorities but also to all others who regard money as an important economic variable. A theoretical "monetary base-maley multip...
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| Main Author: | |
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| Format: | Thesis |
| Language: | English English |
| Published: |
1994
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| Online Access: | http://psasir.upm.edu.my/id/eprint/8051/1/FEP_1994_4_A.pdf http://psasir.upm.edu.my/id/eprint/8051/ |
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| Summary: | The aim of this study is to examine and understand the money
supply process in Malaysia since an understanding of this process is
very useful not only to monetary authorities but also to all others
who regard money as an important economic variable.
A theoretical "monetary base-maley multiplier" model of Narrow
Money Supply (M1) is formulated that expresses Narrow Money Supply
as t he product of the monetary base and the money multiplier. In
turn, the monetary base is stated in terms of its uses and sources
While the money multiplier is expressed in terms of several component
ratios, namely, the currency ratio, Bank Negara Malaysia demand
deposit ratio, time deposit ratio, Government deposit ratio,
statutory (required) reserve ratio and the excess reserve ratio.
According to this model, the money supply process in Malaysia is influenced jointly by the policy decisions of Bank Negara Malaysia
together with the portfolio decisions of commercial banks and the
non-bank private sector and t he decisions of the Government with
respect to the maintenance of its deposits with Bank Negara Malaysia
and t he commercial banks.
An empirical "monetary base-money multiplier " model of the
monetary aggregate is formulated. In this model,the monetary base
and each of the component ratios of the money multiplier are
regressed on the economic and institutional variables that are
hypothesized to affect them, respectively. The behavioural decision
of the non-bank private sector represented by the currency ratio,
Bank Negara Malaysia demand deposit ratio and the time deposit ratio
is found to be influenced by the average personal tax rate, interest
rates and the number of commercial bank offices deflated by
population. The results indicate that income determines the
behavioural decision of commercial banks which is reflected by their
excess reserve ratio.The behavioural decision of Bank Negara
Malaysia and the decision of the Government with respect to the
maintenance of its deposits with t he former,represented by the
monetary base, are believed to be affected by the exchange rate,
foreign income, Government expenditure and the ratio of domestic
interest rate to foreign interest rate. |
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