Neutrality of money has a long debate towards real output. Rational expectation theory states, money is neutral\nat all time, however, short run effect is mainly caused by the unanticipated money supply. On the opposite stance,\nbased on the theory of rational belief, money is neutral neither in short run nor long run. This paper has examined the\nlong run behaviour of monetary aggregates towards Malaysia economic through quarterly data ranging from 1996\nto 2014. Unanticipated money supply which is obtained based on Barro model; M1, M2 and M3 have been tested\nunder the Vector Error Correction Model. Time dummy has been included to accommodate the period of financial\ncrises and fixed exchange rate regime era. However, there is little evidence to support the view of neutrality of money\nhold in Malaysia. The findings provide evidence to support the decision of Malaysia authority getting out from rigid\nexchange rate policy since 2005.
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