Impact of Singapore, US and Japanese Macroeconomic Shocks on Malaysian Economy: A Sign-Restricted SVAR Analysis

Mohd Azlan Shah Zaidi, Zulkefly Abdul Karim



This paper examines the relative importance of Singapore, US and Japanese macroeconomic shocks on Malaysian economy. Employing structural vector auto regression (SVAR) model with a sign restriction approach, the study estimates four models. Each model consists of four domestic macroeconomic variables (output, inflation, interest rate and exchange rate) and three foreign variables (output, inflation and interest rate) of US, Japan, Singapore and the all countries trade-weighted variables, respectively. The results of the study reveal that, relative to domestic shocks, foreign shocks appear to play more prominent role in influencing domestic macroeconomic variables. Among the three foreign countries being investigated, the effect of shock of Singapore is the most dominant. The US effect comes second and the Japanese effect comes last. When Singapore’s variables are the only foreign factors in the system, their shocks bring about significant variation to Malaysian variables especially the output. Consequently, in modeling the effect of foreign factors on Malaysian economy, Singapore effect should be taken into account. This is important as Singapore is not only one of Malaysia’s long-term major trading partners, but it is also one of the Malaysia’s closest neighbors by geographical distance.

Keywords: Foreign shocks; domestic shocks; monetary policy; SVAR; sign restrictions


Kertas ini mengkaji kepentingan relatif kejutan makroekonomi di Singapura, AS dan Jepun terhadap ekonomi Malaysia. Dengan menggunakan model vektor autoregresif berstruktur (SVAR) bersama kaedah kekangan tanda, kajian secara keseluruhan menganggarkan empat model. Setiap satu model mengandungi pemboleh ubah makroekonomi domestik (keluaran, inflasi, kadar bunga dan kadar pertukaran) dan pemboleh ubah makroekonomi asing (keluaran, inflasi dan kadar bunga) yang setiap satunya daripada negara Singapura, AS, Jepun dan kesemua empat negara yang diwakili oleh pemboleh ubah asing yang diterbitkan berdasarkan wajaran perdagangan. Keputusan kajian menunjukkan bahawa kejutan di negara luar memberi kesan yang lebih besar kepada pemboleh ubah makroekonomi domestik. Daripada tiga negara yang diselidiki, didapati kesan kejutan negara Singapura adalah paling dominan. Kesan kejutan negara Amerika syarikat adalah kedua penting dan kesan kejutan Jepun adalah yang paling kurang penting. Apabila pemboleh ubah negara Singapura sahaja dimasukkan dalam model, kejutannya memberi kesan perubahan yang signifikan kepada pemboleh ubah Malaysia terutamanya ke atas output negara. Justeru, dalam pemodelan kesan faktor asing ke atas ekonomi Malaysia, kesan Singapura harus diberi penekanan. Hal ini penting kerana Singapura bukan sahaja rakan dagang jangka panjang Malaysia yang penting, malah ia juga adalah antara yang terdekat dari aspek geografi.

Kata kunci: Kejutan asing; kejutan domestik; dasar monetari; SVAR; kekangan tanda

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