ABSTRACT

This chapter analyzes the impact of exchange rate volatility on the Malaysia's exports to its major trading partner comprising of Singapore, the United States (US), and Japan. It investigates the propagation channels of the dynamic causality effects amongst the export demand variables. The chapter employs the cointegration techniques to examine the long-run export demand function on the linkages among real exports, trade partner's income, relative export prices and exchange rates volatility. It utilizes the Johansen, and Johansen and Juselius multivariate cointegration approach, to check for common stochastic trends that may exist in the system. The chapter investigates the short-run causality relationships within the vector error-correction modelling (VECM) framework. It also employs the quarterly data spanning from 1985:1 to 1997:4 of Malaysia's real exports to Singapore, the US and Japan, the real Gross Domestic Product (GDP) of the trading partners, export price index, and real exchange rates.