The International Transmission of Volatility Shocks on an Emerging Economy: The Case of Malaysia

Abstract

This study examines the effects of global economic policy uncertainty (EPU) on Malaysia's macroeconomic indicators. Three substantive findings emerged from our inquiry based on a multivariate generalized autoregressive conditional heteroscedasticity (GARCH) model: (1) Domestic uncertainty-in nominal and real terms-seems to have no material impact on the macro-economy after controlling for global uncertainty. (2) Fluctuations in the global EPU are more important than domestic uncertainty in predicting a country's macroeconomic variables, particularly output and CPI-based inflation. The macroeconomic variables carry signs as per theoretical expectation. (3) The model predicts that external shocks exhibit a much larger impact on macroeconomic variables than those shocks originating from domestic markets. The results have deepened our insight on how the real variables correlate with external uncertainties and the fitful recovery in the recent past.

A Comparative Analysis of Dynamic Interactions between European and Indonesian Cocoa Markets during the 2008 Global Financial Crisis and the 2011 European Debt Crisis

“…Generally, our findings also demonstrate the sensitivity of Indonesian net export, macroeconomic policies, and market flux to the changes in foreign currency of the USD. The fiscal and monetary policy interactions can explain the repercussion of exchange rate volatility (Shah et al 2019).…”

“…Apart from pricing determinants, currency volatility also causes shocks to cocoa prices (Cozmanca and Manea 2010). The asymmetrical behavior of exchange rate volatility across countries impacts export expansion due to exchange rate risk (Volkov and Yuhn 2016;Buffie, Airaudo, and Zanna 2018), and economic turmoil is among the most considerable determinants that affect volatilities in exchange rates (Nedeljkovic and Urosevic 2012;Shah et al 2019). Furthermore, the global crude oil price also plays a crucial role in influencing other commodity prices.…”