The impact of economic factors on exchange rate in Malaysia / Meezatulakma Abdullah

The research aims to study the impact of economic factor towards exchange rate volatility in Malaysia for the period 1989 to 2018. The reason to conduct this research is because the exchange rate is currently floating negatively in Malaysia. This research objective is to find the best factors and examine the impact on exchange rate in Malaysia for the past 30 years. The primary objective of this study is to justify which factor give more impact toward the exchange rate and as well as the factor that gives the least impact on the exchange rate. This research uses three independent variables that affect the Exchange Rate which are Gross Domestic product, Unemployment and Inflation.
The statistical tests applied in this study are Descriptive Analysis, Augmented Dickey Fully (ADF) Unit Root Test, Philips-Perron (PP) Unit Root Test, Normality Test and Regression Analysis. The data for the observation has been collected through many sources such as World Data Bank, Bank Negara Malaysia (BNM) and Department Of Statistic Malaysia (DOSM). The results indicate that there is a strong significant relationship between Gross Domestic product and exchange rate. However, Unemployment and Inflation show the insignificant relationship with exchange rate volatility. The result of this study indicated that economic factors which is the increasing in gross domestic product and inflation giving significant impact towards exchange rate. Increase in GDP will increase in exchange rate, and vice versa. Higher inflation will decrease exchange rate and vice versa. In order to maintain stability of exchange rate, it is recommended to harmonize fiscal policies with monetary policy first and then make effective link of both these policies with trade policy. Finally, there are few recommendations for future research on how to expand knowledge and reliable result such as add more macroeconomic variable, longer period and research on other country.