Dynamic Relationship between Yuan-Dollar Exchange Rate and Malaysian Macroeconomic Variables in Pre- and Post-Exchange Rate Reform Periods in China

Abstract

This study investigates the impact of changes in the Yuan-Dollar exchange rate (CNYUSD) on Malaysia’s macroeconomic variables during China’s pre- and post-exchange rate reform periods. Using data from 1988 Q1 to 2017 Q2, our results show: firstly, changes in CNYUSD influence Malaysia’s macroeconomic indicators in the post-exchange rate reform period, and an appreciation in CNYUSD leads to an expansion in real GDP and price level; secondly, positive impact on real GDP and price level lasts for one-year horizon; lastly, the variance decomposition yields consistent results with the impulse response function. As a policy suggestion, the Malaysian government should improve the competitiveness of the export sector in order to reap the benefit of Chinese Yuan appreciation through the aggregate demand channel.

Keywords

• renminbi
• china’s exchange rate
• malaysian currency
• macroeconomic indicators