Testing the Neutrality of Money towards Real Output: A Case of MalaysiaYet Huat Sam1*, Caroline Geetha1, Vivin Vincent Chandran1 and Amran Ahmed2
- *Corresponding Author:
- Yet Huat Sam
University of Malaysia Sabah
Kota Kinabalu, Sabah, Malaysia
Tel: (+6088) 320000 ext 2240
Fax: (+6088) 320232
E-mail: [email protected]
Received date: November 06, 2015; Accepted date: November 16, 2015; Published date: November 21, 2015
Citation: Sam YH, Geetha C, Chandran VV, Ahmed A (2015) Testing the Neutrality of Money towards Real Output: A Case of Malaysia. Int J Econ Manag Sci 4:298. doi:10.4172/2162-6359.1000298
Copyright: © 2015 Sam YH, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
Neutrality of money has a long debate towards real output. Rational expectation theory states, money is neutral at all time, however, short run effect is mainly caused by the unanticipated money supply. On the opposite stance, based on the theory of rational belief, money is neutral neither in short run nor long run. This paper has examined the long run behaviour of monetary aggregates towards Malaysia economic through quarterly data ranging from 1996 to 2014. Unanticipated money supply which is obtained based on Barro model; M1, M2 and M3 have been tested under the Vector Error Correction Model. Time dummy has been included to accommodate the period of financial crises and fixed exchange rate regime era. However, there is little evidence to support the view of neutrality of money hold in Malaysia. The findings provide evidence to support the decision of Malaysia authority getting out from rigid exchange rate policy since 2005.