Current account, exchange rate dynamics and the predictability: The experience of Malaysia and Singapore

Ahmad Zubaidi Baharumshah; A. Mansur M. Masih

doi:10.1016/j.intfin.2004.06.002

Current account, exchange rate dynamics and the predictability: The experience of Malaysia and Singapore

Ahmad Zubaidi Baharumshah^*, A. Mansur M. Masih

^*Corresponding author for this work

King Fahd University of Petroleum & Minerals

Research output: Contribution to journal › Article › peer-review

9 Scopus citations

Abstract

The East Asian financial crisis indicated that one of the factors that played a critical role in affecting the exchange rate of a country was its current account balance. This paper attempts to investigate this hypothesis. The Singaporean dollar (SD) and the Malaysian ringgit (RM) against the yen are taken as case studies. Our analysis is based on the recent cointegration method and we examine two issues. First, whether the exchange rates are cointegrated with the fundamentals as predicted by economic theory. Our focus was to investigate whether the exchange rate movements are affected by the economic fundamentals, particularly the current account balance. Our findings suggest that the model fits the data well. Secondly, we wanted to test the validity of our model for forecasting future exchange rates. The findings show that the model does produce good in-sample as well as out-of-sample forecasts.

Original language	English
Pages (from-to)	255-270
Number of pages	16
Journal	Journal of International Financial Markets, Institutions and Money
Volume	15
Issue number	3
DOIs	https://doi.org/10.1016/j.intfin.2004.06.002
State	Published - Jul 2005

Bibliographical note

Funding Information:
The authors are grateful to the anonymous referee and the editor of this journal, Ike Mathur, for his very helpful and constructive comments on the earlier version of this paper. The first author is also a researcher at the Institute of Mathematical Research and wishes to acknowledge the financial support from IRPA [Grant no: 05-02-04-0532]. We retain responsibility for any errors.

Keywords

Cointegration
Exchange rates
Out-of-sample forecast

ASJC Scopus subject areas

Finance
Economics and Econometrics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.intfin.2004.06.002

Cite this

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title = "Current account, exchange rate dynamics and the predictability: The experience of Malaysia and Singapore",

abstract = "The East Asian financial crisis indicated that one of the factors that played a critical role in affecting the exchange rate of a country was its current account balance. This paper attempts to investigate this hypothesis. The Singaporean dollar (SD) and the Malaysian ringgit (RM) against the yen are taken as case studies. Our analysis is based on the recent cointegration method and we examine two issues. First, whether the exchange rates are cointegrated with the fundamentals as predicted by economic theory. Our focus was to investigate whether the exchange rate movements are affected by the economic fundamentals, particularly the current account balance. Our findings suggest that the model fits the data well. Secondly, we wanted to test the validity of our model for forecasting future exchange rates. The findings show that the model does produce good in-sample as well as out-of-sample forecasts.",

keywords = "Cointegration, Exchange rates, Out-of-sample forecast",

author = "Baharumshah, \{Ahmad Zubaidi\} and Masih, \{A. Mansur M.\}",

note = "Funding Information: The authors are grateful to the anonymous referee and the editor of this journal, Ike Mathur, for his very helpful and constructive comments on the earlier version of this paper. The first author is also a researcher at the Institute of Mathematical Research and wishes to acknowledge the financial support from IRPA [Grant no: 05-02-04-0532]. We retain responsibility for any errors. ",

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AU - Baharumshah, Ahmad Zubaidi

AU - Masih, A. Mansur M.

N1 - Funding Information: The authors are grateful to the anonymous referee and the editor of this journal, Ike Mathur, for his very helpful and constructive comments on the earlier version of this paper. The first author is also a researcher at the Institute of Mathematical Research and wishes to acknowledge the financial support from IRPA [Grant no: 05-02-04-0532]. We retain responsibility for any errors.

PY - 2005/7

Y1 - 2005/7

N2 - The East Asian financial crisis indicated that one of the factors that played a critical role in affecting the exchange rate of a country was its current account balance. This paper attempts to investigate this hypothesis. The Singaporean dollar (SD) and the Malaysian ringgit (RM) against the yen are taken as case studies. Our analysis is based on the recent cointegration method and we examine two issues. First, whether the exchange rates are cointegrated with the fundamentals as predicted by economic theory. Our focus was to investigate whether the exchange rate movements are affected by the economic fundamentals, particularly the current account balance. Our findings suggest that the model fits the data well. Secondly, we wanted to test the validity of our model for forecasting future exchange rates. The findings show that the model does produce good in-sample as well as out-of-sample forecasts.

AB - The East Asian financial crisis indicated that one of the factors that played a critical role in affecting the exchange rate of a country was its current account balance. This paper attempts to investigate this hypothesis. The Singaporean dollar (SD) and the Malaysian ringgit (RM) against the yen are taken as case studies. Our analysis is based on the recent cointegration method and we examine two issues. First, whether the exchange rates are cointegrated with the fundamentals as predicted by economic theory. Our focus was to investigate whether the exchange rate movements are affected by the economic fundamentals, particularly the current account balance. Our findings suggest that the model fits the data well. Secondly, we wanted to test the validity of our model for forecasting future exchange rates. The findings show that the model does produce good in-sample as well as out-of-sample forecasts.

KW - Cointegration

KW - Exchange rates

KW - Out-of-sample forecast

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M3 - Article

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SN - 1042-4431

VL - 15

SP - 255

EP - 270

JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

IS - 3

ER -

Current account, exchange rate dynamics and the predictability: The experience of Malaysia and Singapore

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

UN SDGs

Access to Document

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Cite this