ABSTRACT
This chapter provides empirical evidences for several issues. The first research issue is related to what are the major causes of inflation in Malaysia. The second issue relates to whether external factors are important in the generation of inflation in the Malaysian economies. The chapter identifies the relative importance of various domestic as well as external influences in the generation of inflation in the Malaysian economies. It employs the data are collected from various issues of International Financial Statistics published by the International Monetary Fund, Annual Reports and Quarterly Bulletins of Bank Negara Malaysia, and Economic Reports of Finance Ministry, Malaysia. The chapter describes the estimations of vector error-correction model (VECM), the analysis of impulse response functions and the variance decomposition of the model. The direction and the intensity of the causal effects, however, can only be determined in the VECM.
