Papers by Mohd Azlan Shah Zaidi
Interest Rate Uncertainty, Spread and Economic Activity: Empirical Evidence in Malaysia
Economic Journal of …, 2009
Abstract The determination of the term structure of interest rate is of great interest to both po... more Abstract The determination of the term structure of interest rate is of great interest to both policy makers and researchers in finance and economics. Not surprisingly, a large body of literature (among others, Fisher (1907), Cox, Ingersoll and Ross (1985), and Longstaff ( ...

Economic Journal of Emerging …, 2009
The main objective of this paper is to evaluate the relative impact of financial sector developme... more The main objective of this paper is to evaluate the relative impact of financial sector development, government size and trade openness of a country on its economic growth. This is done to investigate which factors play more prominent role in leading the growth of the economy. Four ASEAN countries known for their similar economic orientation, namely Malaysia, Thailand, Indonesia and Singapore have been selected for this purpose. To achieve the objective, a series of econometric tests is applied. These include unit root test and cointegration test. A vector error correction model (VECM) is then applied to capture both the short-run dynamic and the long-run equilibrium relationship between variables. Impulse response function is utilized to look at the impact of each variable on economic growth while variance decomposition is used to measure the magnitude of the impact. The results show that trade openness plays the leading role in promoting economic growth in Malaysia, Singapore and Indonesia. For Malaysia financial sector development follows second and the government size comes third while for Singapore the order is reverse. For Indonesia, the government size overtakes the leading role at the later stage while the financial sector development is immaterial. For Thailand, no firm conclusion can be made, as the results are not promising. The results signify that the right policies have been taken by the selected countries to promote higher economic growth.

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Most previous studies on the effect of foreign shocks on small open economies mainly take into ac... more Most previous studies on the effect of foreign shocks on small open economies mainly take into account the influence of foreign effects of US, Europe or Japan. For a small open developing economy like Malaysia, the inclusion of US and/or Japan in the macro model is mostly due to the fact that these countries have consistently contributed a large part of the total trade and investment in the host country. While Singapore, the neighboring country, has also been one of Malaysia's' important trading partner, exclusion of it into the macro model of the country might has made the importance of US and/or Japanese effect overrated. This paper takes into account the Singapore effect and investigates the relative importance of Singapore, US and Japanese shocks on Malaysian economy. Employing sign restriction approach on SVAR impulse responses, the overall results suggest that Singapore has considerably large effect on Malaysian economy and one should take it into consideration when modeling the effect of external shocks on Malaysian economy.

ukm.my
This paper aims to investigate the role of institutional variables upon the inflow of foreign dir... more This paper aims to investigate the role of institutional variables upon the inflow of foreign direct investment (FDI) in selected MENA (Middle East and North Africa) countries. This study used a panel ARDL model, or Pooled Mean Group (PMG) estimation proposed by Pesaran et al. (1999), in which it enables to capture the long-run and short-run relationship among the variables of interest. This study focuses on several institution variables namely the investment profile, internal conflict, democratic accountability, bureaucracy quality and military in politics. The empirical findings revealed that the investment profile, internal conflict, and bureaucracy are positively and statistically significant in influencing the inflow of FDI. Thus, in attracting foreign investors, the policy maker in MENA countries should implement a FDI-friendly policies by providing and maintaining the quality of domestic institutions.

This paper examines the dynamic linkages between economic growth, fixed investment, and household... more This paper examines the dynamic linkages between economic growth, fixed investment, and household consumption in Malaysia using a structural vector error correction model (SVECM) approach. The empirical results revealed that household consumption and fixed investment are significant in influencing the output growth in the short run. This finding tends to support the alternative view of growth hypothesis, namely fixed investment-led growth, and household consumption-led growth in the short run. In the long run, there is no significant effect of fixed investment and household consumption on growth. However, in the long run, there is a permanent effect of economic growth on household consumption and investment. This empirical finding implies that a demand side policy (for example through fiscal or monetary policy) which can affect the household consumption and investment is only effective to stimulate the economic activity in the short run. Thus a supply side policy would be needed to stimulate the economy in the long run.

Studies on Malaysia monetary policy mostly examine the effect of monetary policy change on output... more Studies on Malaysia monetary policy mostly examine the effect of monetary policy change on output and inflation in aggregate terms. While sectoral output effects of monetary policy have also been investigated, there is however a lack in the study on the effect of policy change on disaggregated inflation. This paper attempts to examine the later issue by employing structural vector autoregressive (SVAR) model. By estimating the model separately for each sub-group of Malaysian consumer price index, we find that a modest monetary policy shock results in varying degree of responses in disaggregated inflation. In other words, some sub-group inflation react instantly while others respond sluggishly to a monetary policy shock. In contrast to aggregate inflation response, there is also evidence of price puzzle. The results give some insight to monetary authority on how to control inflation in aggregate as well as in disaggregate terms and in turn manage the cost of living issues in Malaysia.

ukm.my
This paper examines the effects of monetary policy shocks upon the equity returns of financially ... more This paper examines the effects of monetary policy shocks upon the equity returns of financially constrained and less-constrained firms by augmenting the French (1992, 1996) multifactor model and using a dynamic panel data approach. Monetary policy shocks are generated via a recursive structural VAR (SVAR) identification scheme which allows the monetary authority to set the overnight interbank rate after observing the current value of world oil price, foreign income, foreign monetary policy, domestic output and inflation. The firms are split into two categories namely, financially constrained and financially less-constrained using the cash-flow to income ratio. The results reveal that the equity returns of financially constrained firms are more affected by domestic monetary policy shocks than the returns of less constrained firms. However, international monetary policy shocks significantly influence the equity returns of financially less-constrained firms, but not the financially constrained firms.

ukm.my
There are different theories which relate inflation to relative price variability (RPV). While me... more There are different theories which relate inflation to relative price variability (RPV). While menu cost model relates RPV to expected inflation, signal extraction model and extension of signal extraction relate RPV to inflation uncertainty and unexpected inflation. Using Malaysian data from 1994-2011, this study further investigates the relationship between inflation and the RPV while taking into account some other aspects of inflation which are inflation uncertainty, expected inflation and unexpected inflation. These aspects of inflation are not often discussed by previous studies in Malaysia. An autoregressive GARCH model is employed to decompose inflation to expected and unexpected elements while the conditional variance of the GARCH model is used as a proxy for inflation uncertainty. The results are consistent with menu cost model as they show that expected inflation increases RPV. However, unexpected inflation is also positively and significantly correlated with RPV and the equality test on coefficients shows that the sign of unexpected inflation is irrelevant and only its magnitude matters as predicted by extension of signal extraction model. Based on these results the study concludes that while empirical evidences support both menu cost and extension of signal extraction, none of the theories on its own can completely explain the determinants of RPV.

Asian Journal of …, 2012
Since the 1990's, institutional factors have been regarded as playing important roles in stimulat... more Since the 1990's, institutional factors have been regarded as playing important roles in stimulating foreign direct investments (FDI). However, empirical studies on their importance in affecting FDI are still lacking, especially in regards to small open economies. This paper attempts to investigate the role of institutions in regards to the inflow of FDI in Malaysia's small open economy of Malaysia. Using the bounds testing approach (ARDL model), empirical findings reveal that a long-run relationship exists between FDI and institutional variables. Several institutional variables are found to play prominent roles in influencing the inflow of FDI, namely governmental stability, bureaucracy and corruption. Thus, providing and maintaining the quality of domestic institutions alongside the implementation of FDI friendly policies would be beneficial to Malaysian economic growth stemming from foreign investment.

Since 1990's, institution factors have been regarded as playing important roles in stimulating fo... more Since 1990's, institution factors have been regarded as playing important roles in stimulating foreign direct investments (FDI). However, empirical studies on their importance in affecting FDI are still lacking especially for small open economies. This paper attempts to investigate the role of institutions upon the inflow of foreign direct investment (FDI) in a small open economy of Malaysia. Using bounds testing approach (ARDL model), the empirical findings reveal that there exists a long run relationship among FDI and the institution variables. Specifically, several institution variables namely government stability, bureaucracy, and corruption are found to play prominent roles in influencing the inflow of FDI. Thus, in attracting foreign investors, implementing FDI-friendly policies by providing and maintaining the quality of domestic institutions would be beneficial to Malaysian economic growth.

ukm.my
Following its rapid transformation from an agricultural-dependent economy into a manufacturing-ba... more Following its rapid transformation from an agricultural-dependent economy into a manufacturing-based and export-oriented economy industry, it might be expected that Malaysia has become more susceptible to external shocks. If this is the case, then formulation of macroeconomic policy will need to take into account not only the domestic disturbances, but also their foreign counterparts. This paper investigates the relative importance of international and domestic shocks in affecting the Malaysian economy. Three different specifications are used to represent the external sector for Malaysia. The first model combines US and Japanese variables to represent the world economy. As a comparison, the other two models use US and Japanese variables by themselves, to capture the external sector. Using structural vector autoregressive analysis with non-recursive identification framework in each model, the main findings suggest that domestic shocks play the major role in determining short-run variation in real and financial variables in Malaysia. In the medium to longer term is where foreign shocks play a more important role. The only exceptions are for inflation and the exchange rate where foreign factors are dominant both in the short and long term. Relative to the use of a weighted average of US and Japanese variables, the use of US or Japanese variables alone to represent foreign sector, frequently produces quite different estimates of the influence of foreign (and domestic) shocks on the Malaysian economy. 4 Foreign real output is represented by the log of trade weighted industrial production of Australia, US, UK, Japan, Germany , Hong Kong, Taiwan and South Korea, while foreign nominal interest rates are represented by a weighted average of Australia, US, UK, Japan and German 90-day interest rates. 5 In Tang's (2006) model imposing complete block-exogeniety produces an unstable model in which not all of the roots (of the characteristic polynomials) lie outside the unit circle.
ukm.my
Studies on Malaysia monetary policy mostly examine the effect of monetary policy change on output... more Studies on Malaysia monetary policy mostly examine the effect of monetary policy change on output and inflation in aggregate terms. While sectoral output effects of monetary policy have also been investigated, there is however a lack in the study on the effect of policy change on disaggregated inflation. This paper attempts to examine the later issue by employing structural vector autoregressive (SVAR) model. By estimating the model separately for each sub sector of Malaysian consumer price index, we find that a modest monetary policy shock results in varying degree of responses in disaggregated inflation. In other words, some subsector inflation react rapidly while others respond sluggishly to a monetary policy shock. In contrast to aggregate inflation response, there is also evidence of price puzzle.
ukm.my
This paper investigates the effect of monetary policy shocks (domestic and international monetary... more This paper investigates the effect of monetary policy shocks (domestic and international monetary policy) on Malaysian firm-level equity returns in a dynamic panel data framework. The results of the study revealed that firms' stock returns have responded negatively to monetary policy shocks. Interestingly, the effect of domestic monetary policy shocks also have differential effects, having a statistically significant impact on small firms' equity returns, but not on large firms' stock returns. The effect of monetary policy shocks also varies according to the subsector of the economy in which firms are operating. The effect of international monetary policy upon equity returns is also heterogeneous by firm size and subsector of economic activity.
Monetary policy and foreign shocks: a SVAR analysis for Malaysia| Macquarie University ResearchOnline
Macquarie University ResearchOnline.
Relative price variability and inflation: empirical evidence in Peninsular Malaysia, Sabah and Sarawak
This study investigates the relationship between relative price variability and inflation in thre... more This study investigates the relationship between relative price variability and inflation in three regions in Malaysia namely Peninsular Malaysia, Sabah and Sarawak. Using monthly time series data from January 1970 until Mac 2005, this study utilizes the non-linear time series technique of STAR and LSTAR models. Based on the empirical evidence, it is clearly shown that the relative price variability

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Tax is one of the ways to finance government expenditures and it plays an important role in incre... more Tax is one of the ways to finance government expenditures and it plays an important role in increasing the government revenue. The amount of tax collected depends on the structure of the economy. When the taxation system is ineffective, many people will use this opportunity to avoid paying tax and tax evasion will be popular. In the presence of tax evasion, the government cannot allocate revenue for their programs and cannot provide desirable social services. Realizing the significant impact of tax evasion on the economy, this study tries to determine factors that cause tax evasion and their relative contribution. The study employs an Artificial Neural Network methodology on Malaysian data from 1963-2010. The results show that the tax burdens, the size of governments and inflation rate have positive effect on tax evasion, but there is negative relationship between tax payers' income and trade openness with tax evasion.
Hubungan antara Kadar Pulangan Nominal dengan Permintaan Deposit Sistem Perbankan Islam di Malaysia
... digariskan di dalam kitab suci al-Quran dan sunnah Nabi Muhammad saw Lazimnya, ... Persamaan ... more ... digariskan di dalam kitab suci al-Quran dan sunnah Nabi Muhammad saw Lazimnya, ... Persamaan antara kajian Muzafar (1989) dan Marashdeh (1998) adalah terdapatnya pengaruh kadar pulangan ... jangka pendek pula akan dapat diukur melalui ujian wald (statistik F) ke atas ...
Dasar Kewangan, Sasaran Matlamat Pertengahan dan Matlamat Ekonomi
... Dalam teori ekonomi kewangan, pemilihan sasaran pertengahan yang sesuai sering menimbulkan ..... more ... Dalam teori ekonomi kewangan, pemilihan sasaran pertengahan yang sesuai sering menimbulkan ... kos memegang rizab berkanun, keperluan mudah tunai minimum, kos pentadbirandan overhead ... kawalan terhadap agregat kewangan sebagai sasaran dasar dan telah beralih ...
Islamic Unit Trust Funds as Ethical Funds in Malaysia
This paper discusses the development of ethical funds and the Islamic funds in Malaysia and evalu... more This paper discusses the development of ethical funds and the Islamic funds in Malaysia and evaluates how the investment criteria of ethical funds coincide with the investment perspective of the Islamic fund or vice versa. This study selected two ethical funds and ...
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Papers by Mohd Azlan Shah Zaidi