THE REAL EXCHANGE RATE MALAYSIA

Abstract

This study examines the real exchange rate determination in Malaysia. The results of the cointegrating vectors show that an increase in productivity differential, the real oil price or reserve differential will lead to an appreciation of the real exchange rate. The results of the generalised forecast error variance decompositions show that the real oil price is an important determinant of the real exchange rate. Generally, productivity differential, the real oil price, reserve differential, and the real interest rate differential are important in the real exchange rate determination.