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An Investigation of Possible Relationships between the Interest Rate in Malaysia and the Exchange Rate in Singapore

Yip, Chee Yin, (2007) An Investigation of Possible Relationships between the Interest Rate in Malaysia and the Exchange Rate in Singapore. Malaysian Journal of Science, 26 (SKSM14 Special Issue). pp. 145-156. ISSN 13943065

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Official URL: http://www.ejum.fsktm.um.edu.my/

Affiliations

Universiti Utara Malaysia. Faculty of Quantitative Sciences.

Abstract

In time series analysis, we investigate the relationship between observations separated by a known time interval. We also make forecast based on past observations of the same
series. In this paper, we attempt to study the interest rate in Malaysia by examining the dynamics of exchange rate in Singapore and vice versa. By regressing the cyclic components of the interest rate in Malaysia on the like components of the exchange rate in Singapore, we are able to conclude that both of these quantities are related negatively with each other. To put it differently, we conclude that by knowing the dynamics of the exchange rate in Singapore, we can at least track the sign of the movement of the interest rate in Malaysia. In addition, we can use the cyclic component to model the behavioural pattern of investors in Malaysia and Singapore in general.

Item Type:Journal
Keywords:Unit root tests, Nelson-Beveridge Decomposition, Regression, Stationarity, mean reversion, Kalman filter, State space representation and cyclic component
Subjects:H Social Sciences, Economics, Sociology
Q Science, Computer Science
ID Code:2695

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