• Mohd Jaffri Abu Bakar Universiti Teknologi Malaysia
  • Nanthakumar Loganathan Universiti Teknologi Malaysia
  • Asan Ali Golam Hassan Universiti Teknologi Malaysia
  • Tirta Nugraha Mursitama Bina Nusantara University



asymmetric analysis, interest rate, nonlinear causality, real effective exchange rate


The research examined this asymmetric effect between the interrelationship of the interbank rate on the external competitiveness purchasing power represented by the real effective exchange rate for Malaysia and Thailand using monthly data covering the period of 1994 until 2020. The empirical findings confirms an asymmetric effect between interbank rate and real effective exchange rate based on the nonlinear autoregressive distributed lag estimates. The research also finds a unidirectional asymmetric causal relationship running from real effective exchange rate on interbank rate Thailand, which indicate the monetary policy has a direct relationship on interbank rate volatility. While in Malaysia, there is no causality running between both variables since the country has proposed several soft monetary policies and more concentrating on the short-term borrowing by improving the tight money supply circulation based on the domestic inflation, global economic, and financial market volatility. Therefore, the research recommends a specific need of monetary stabilizer policy to stabilize both countries’ currencies and put more effort to liberalize the foreign exchange rate system in a globalized economy.


Plum Analytics

Author Biographies

Mohd Jaffri Abu Bakar, Universiti Teknologi Malaysia

Mohd Jaffri Abu Bakar

Azman Hashim International Business School

Universiti Teknologi Malaysia

54100 Kuala Lumpur, Malaysia


Asan Ali Golam Hassan, Universiti Teknologi Malaysia

Asan Ali Golam Hassan

Azman Hashim International Business School

Universiti Teknologi Malaysia

54100 Kuala Lumpur, Malaysia



Abdoh, M. M. Y., Yusof, M. N. H., Zulkifli, M. S. A, Bulot, N., & Ibrahim, N. J. (2016). Macroeconomic factors that influence exchange rate fluctuation in ASEAN countries. International Academic Research Journal of Social Science, 2(1), 89-94.

AbuDalu, A. & Ahmed, E. M. (2014). The determinants of ASEAN-5 real effective exchange rate vis-ávis the UK pound. World Journal of Entrepreneurship, Management and Sustainable Development, 10(2), 98-118.

Adler, K. & Grisse, C. (2014). Real exchange rates and fundamentals: Robustness across alternative model specifications. SNB Working Papers 7/2014.

Ahmed, H. F. T. & Mazlan, N. S. (2021). The impact of interest rate on exchange rate within ASEAN countries: Evidence from linear and nonlinear framewirks. Global Journal of Emerging Market Economies, 13(1), 7-34.

Aizenman, J., Chinn, M. D., & Ito, H. (2016). Monetary policy spillovers and the trilemma in the new normal: Periphery country sensitivity to core country conditions. Journal of International Money and Finance, 68, 298-330.

Aizeman, J., Hutchison, M., & Noy, I. (2011). Inflation targeting and real exchange rates in Emerging markets. World Development, 39(5), 712-724.

Alsamara, M., & Mrabet, Z. (2019). Asymmetric impacts of foreign exchange rate on the demand for money in Turkey: New evidence from nonlinear ARDL. International Economics and Economic Policy, 16(2), 335-356.

Andonov, A., Bauer, R. M., & Cremers, K. M. (2017). Pension fund asset allocation and liability discount rates. Review of Financial Studies, 30(8), 2555-2595.

Andries¸, A. M., Capraru, B., Ihnatov, I., & Tiwari, A. K. (2017). The relationship between exchange rates and interest rates in a small open emerging economy: The case of Romania. Economic Modelling, 67, 261-274.

Ariff, M. & Yap, Meow-Chung, M. (2001) Financial crisis in Malaysia. In T.-S. Yu and D. Xu (Eds.), East Asia Rising Again. Singapore: World Scientific Publishing.

Bagchi, D., Chortareas, G. E., & Miller, S. M. (2004). The real exchange rate in small, open developed economies: Evidence from cointegration analysis. Economic Record, 80(248), 76-88.

Balduzzi, P. & Chiang, I. E. (2020). Real exchange rate and currency risk premiums. The Review of Asset Pricing Studies, 10(1), 94-121.

Bank of Thailand (2020). Development of monetary policy framework in Thailand.

Bank of Thailand. (2021). Interest rates.

Barbosa, L. O. S., Jayme, F. G. Jr., & Missio, F. J. (2018). Determinants of the real exchange rate in the long-run for developing and emerging countries: A theoretical and empirical approach. International Review of Applied Economics, 32(1), 62-83.

Bartolli, L. (1995). Purchasing power parity measures of competitiveness. Finance and Department, 32(3), 46-49.

Bowe, M., & Saltvedt, T. M. (2004). Currency invoicing practices, exchange rate volatility and pricing to market: Evidence from product level data. International Business Review, 13(3), 281-308.

Brailsford, T., Penm, J. H. W., & Lai, C. D. (2006). Effectiveness of high interest rate policy on exchange rates: A reexamination of the Asian financial crisis. Advances in Decision Sciences, 4, 1-9.

Capasso, S., Napolitano, O., & Jiménez, V. A. L. (2019). The long run interrelationship between exchange rate and interest rate; the case of Mexico. Journal of Economic Studies, 46(7), 1380-1397.

Cecchetti, S. G., Grifoli, T. M., Narita, M., & Sahay, R. (2020). US or domestic monetary policy: Which matters more for financial and stability? IMF Economic Review, 68, 35-65.

Central Bank of Malaysia. (2021). Interest rates and volumes.

Cheong, L. M. (2005). Globalization and the operation of monetary policy in Malaysia. BIS Papers, 23, 209-215.

Chowdhury, K. (2012). Modelling the dynamics, structural breaks and the determinants of the real exchange rate of Australia. International Financial, Markets, Institution and Money, 22(2), 343-358.

Cobham, D. (2021). A comprehensive classification of monetary policy frameworks in advanced and emerging economies. Oxford Economic Papers, 73(1), 2-26.

Curran, M., & Velic, A. (2019). Real exchange rate persistence and country characteristics: A global analysis. Journal of International Money and Finance, 97, 35-56.

Data and analytics. (2021). J. P. Morgan.

Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057–1072.

Draz, M., Ahmad, F., Gupta, B., & Amin, W. (2019). Macroeconomic fundamentals and exchange rates in South Asian economies. Journal of Chinese Economic and Foreign Trade Studies, 12(2), 104-119.

Enders, W., & Lee, J. (2012). The flexible fourier form and Dickey-Fuller type unit root tests. Economics Letters, 117(1), 196–199.

Engel, C. (2019). Real exchange rate convergence: The roles of price stickiness and monetary policy. Journal of Monetary Economics, 103, 21-32.

Furman, J., Stiglitz, J. E., Bosworth, B. P., & Radele, S. (1998). Economic crises: Evidence and insights from East Asia. Brookings Papers on Economic Activity, 2, 1-135.

Golit, P., Salisu, A., Akintola, A., Nsonwu, F., & Umoren, I. (2019). Exchange rate and interest rate differential in G7 Economies. Bulletin of Monetary Economics and Banking, 22(3), 263-286.

Gozgor, G. (2014). Causal relation between economic growth and domestic credit in the economic globalization: Evidence from the Hatemi-J’s test. The Journal of International Trade & Economic Development, 24(3), 395-408.

Granville, B., & Mallick, S. (2010). Monetary policy in Russia: Identifying exchange rate shocks. Economic Modelling, 27(1), 432-444.

Hanson, S. G. & Stein J. C. (2015). Monetary policy and long-term real rates. Journal of Financial Economics, 115, 429-448.

Hatemi-J, A. (2012). Asymmetric causality tests with an application. Empirical Economic, 43, 447-456.

Hnatkovska, V., Lahiri, A., & Vegh, C. A. (2013). Interest rate and the exchange rate: A non-monotonic tale. European Economic Review, 63, 68-93.

Hoang, V., Nguyen, D. K., & Pham, T. A. (2020). On the effects of monetary policy in Vietnam: Evidence from a trilemma analysis. The World Economy, 1-34.

Hossain, A. A. (2017). Monetary policy for maintaining low, stable inflation in Malaysia. The Journal of Developing Areas, 51(2), 381-404.

Kalemli-Ozcan, S. & Varela, L. (2019). Exchange Rate and Interest Rate Disconnect: The Role of Capital Flows, Currency Risk and Default Risk. Meeting Papers 351, Society for Economics Dynamics

Karamelikli, H. & Karimi, M. S. (2020). Asymmetric relationship between interest rates and exchange rate: Evidence from Turkey. International Journal of Finance and Economics, 1-11.

Katrakilidis, C. & Trachanas, E. (2012). What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration. Economic Modelling, 29(4), 1064-1069.

Kayhan, S., Bayat, T., & Ugur, A. (2013). Interest rates and exchange rate relationship in BRIC-T countries. Ege Academic Review, 13(2), 227-236.

Khin, A. A., Yee, C. Y., Seng, L. S., Wan, C. M., & Xian, G. Q. (2017). Exchange rate volatility on macroeconomic determinants in Malaysia: Vector error correction method (VECM) model. Journal of Global Business and Social Entrepreneurship, 3(5), 36-45.

Kia, A. (2013). Determinants of the real exchange rate in a small open economy: Evidence from Canada. Journal of International Financial Markets, Institutions and Money, 23, 163-178.

Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54(1-3), 159-178.

McCauley, R. N. (2006). Understanding monetary policy in Malaysia and Thailand: Objectives, instruments and independence. BIS Papers chapters. In Bank for International Settlements (Ed.), Monetary Policy in Asia: Approaches and Implementation, 31, 172-196.

Nguyen, D.K., Sousa, R.M., & Uddin, G.S. (2015). Testing for asymmetric causality between U.S. equity returns and commodity futures returns. Finance Research Letters, 12, 38-47.

Nguyen, N., Harvie, C., & Suardi, S. (2020). ASEAN income gap and the optimal exchange rate regime. Applied Economics, 52(3), 1-17.

Oliver, V. (1997). Early beginnings of the beginning of the quantity theory of money and their context in Polish and Prussian monetary policies. Economic History Reviews, 50(3), 430-449.

Patel, D. & Mah, G. (2018). Relationship between real exchange rate and economic growth: the case of South Africa. Journal of Economics and Behavioral Studies, 10(1), 146-158.

Pattanaik, S. & Mitra, K. A. (2001). Interest rate defense of exchange rate: Tale of the Indian rupee. Economic and Political Weekly, 36, (46/47), 4418-4427.

Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica, 57, 1361-1401.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289-326.

Phuc, N. V., & Duc, V. H. (2019). Macroeconomics determinants of exchange rate pass-through: New evidence from the Asia-Pacific region. Emerging Markets Finance and Trade, 1-16.

Saraç, T. B. & Karagöz, K. (2016). Impact of short-term interest rate on exchange rate: The case of Turkey. Procedia Economics and Finance, 38, 195-202.

Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework. In W. Horrace, & R. Sickles (Eds.), The Festschrift in Honor of Peter Schmidt: Econometric Methods and Applications (pp. 281-314). Springer.

Sun, W. & De, K. (2019). Real exchange rate, monetary policy, and the U.S. economy: Evidence from a FAVAR model. Economic Inquiry, 57(1), 552-568.

Tari, R. & Abasiz, T. (2009). Frequency domain approach and short-run and long run causality test: Evidence from Turkey for interest rate and exchange rate relationship. METU Studies in Development, 36(2), 405-421.

Timeline: Thailand’s turbulent politics over two decades. (2019, March 22). Reuters.

Verico, K. (2017). The key factors of economic integration in Southeast Asia: Case of Indonesia, Malaysia and Thailand. Journal of ASEAN Studies, 4(2), 107-126.

Yakubu, Z., Loganathan, N., Sethi, N., & Golam Hassan, A. A. (2021). Do financial development, trade openness and political stability complement for Egypt’s economic growth? Journal of International Commerce, Economics and Policy, 12(1).

World Bank. (2021). World Development Indicators. Retrieved from http:

Malaysia: December 2001. (2001, December 05). World Trade Organization.

Wu, J. L. & Chen, S. L. (1998). A re-examination of real interest rate parity. The Canadian Journal of Economics, 837-851.



Abstract 591  .
PDF downloaded 384  .