Economics, Econometrics and Finance
4 years ago

Interest rate hike in Malaysia could stabilize exchange rate volatility, study finds.

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A Vector Error Correction Model (VECM) Approach in Explaining the Relationship between Interest Rate and Inflation Rate towards Exchange Rate Volatility in Malaysia
Fadli Fizari Abu Hassan Asari, Nurul Syuhada Baharuddin, Nurmadihah Jusoh, Zuraida Mohamad, Norazidah Shamsudin, Kamaruzaman Jusoff

Paper Summary

The article examines how interest rates, inflation rates, and exchange rate volatility are related in Malaysia from 1999-2009. Using a Vector Error Correction Model (VECM), the researchers found that inflation rates affect interest rates, which in turn impact exchange rates. Specifically, increasing interest rates can help stabilize exchange rate volatility in Malaysia.

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