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Determinants of Inflation in Malaysia: Monetary or Real Factor?

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Mathematical Methods for Engineering Applications (ICMASE 2021)

Part of the book series: Springer Proceedings in Mathematics & Statistics ((PROMS,volume 384))

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Abstract

This study examines if the inflationary of Malaysia is due to monetary or real factor. The examination is based on the Quantity Theory of Money (QTM). The data are in quarterly and range from year 1997 to 2018. The main determinants to be tested are money supply (M1, M2 and M3), real gross domestic product (RGDP) and real broad effective exchange rate (RBEER). The Autoregressive Distributed Lags (ARDL) model and the nonlinear ARDL model are employed. The empirical results detect M3 as the best proxy for money supply. The results reveal that money supply has short-run impact on inflation meanwhile the RGDP has both short-run and long-run impacts on inflation. QTM only holds partially in the short-run but invalid in the long-run. The main determinant of inflation is RGDP in the long-run. Therefore, the policymakers should strive for stable economy growth through accommodation of both fiscal and monetary policy.

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Acknowledgements

We would like to acknowledge our thankful to “Ministry of Higher Education Malaysia for Fundamental Research Grant Scheme: FRGS/1/2018/STG06/USM/02/6.

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Authors and Affiliations

  1. School of Mathematical Sciences, Universiti Sains Malaysia, 11800 Gelugor, Penang, Malaysia

    Nurul Syafiqah Binti Mohd Shafie, Phaik Chin Tan & Siok Kun Sek

Authors
  1. Nurul Syafiqah Binti Mohd Shafie
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  2. Phaik Chin Tan
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  3. Siok Kun Sek
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Corresponding author

Correspondence to Siok Kun Sek .

Editor information

Editors and Affiliations

  1. Faculty of Arts and Sciences, Ankara Hacı Bayram Veli University, Ankara, Turkey

    Fatih Yilmaz

  2. Institute of Fundamental Physics and Mathematics, University of Salamanca, Salamanca, Spain

    Araceli Queiruga-Dios

  3. Faculty of Sciences, University of Salamanca, Salamanca, Spain

    María Jesús Santos Sánchez

  4. Polytechnic Institute of Coimbra (ISEC), Coimbra, Portugal

    Deolinda Rasteiro

  5. Institute of Physical and Information Technologies (ITEFI), Spanish National Research Council (CSIC), Madrid, Spain

    Víctor Gayoso Martínez

  6. Institute of Fundamental Physics and Mathematics, University of Salamanca, Salamanca, Spain

    Jesús Martín Vaquero

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Binti Mohd Shafie, N.S., Tan, P.C., Sek, S.K. (2022). Determinants of Inflation in Malaysia: Monetary or Real Factor?. In: Yilmaz, F., Queiruga-Dios, A., Santos Sánchez, M.J., Rasteiro, D., Gayoso Martínez, V., Martín Vaquero, J. (eds) Mathematical Methods for Engineering Applications. ICMASE 2021. Springer Proceedings in Mathematics & Statistics, vol 384. Springer, Cham. https://doi.org/10.1007/978-3-030-96401-6_10

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