The Long-run Impact of Bilateral Real Exchange Rate Volatility on Malaysia’s Bilateral Trade Balance with its Major Trading Partners
Abstract
The objective of this paper is to analyse the long-run impact of
bilateral real exchange rate volatility on Malaysias bilateral trade
balance with its major trading partners, comprising the United
States, Singapore, Japan, United Kingdom, and Republic of Korea
over the monthly period 1990:1 to 2002:12. The long-run impact
will be analysed using the cointegration analysis and a vector error
correction model (VECM) framework which treats all variables in
the model as potentially endogenous. In this study, the GARCH model
is employed to measure the bilateral exchange rate volatility. Our
findings revealed that there is a positive long-run impact of exchange
rate volatility on the trade balance of Malaysia with the United
States, a negative long-run impact on the trade balance of Malaysia
with Singapore and no impact on the trade balance of Malaysia
with the other three countries.
Copyright (c) 2008 Mazila Md Yusuf
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