Determinants of exchange rate volatility in Malaysia / Nur Amira Shahira Idham

Exchange rate has become an important role in the country's level trade activity. The profit or losses from import and export activities are depending on current exchange rate. This research paper will study about the determinants of exchange rate volatility in Malaysia over 1970 until 2015. This research use Ringgit Malaysia as a proxy of currency of exchange rate which is dependent variable with six (6) independent variables; gross domestic product (GDP), inflation rate, interest rate, trade openness, foreign direct investment and foreign debt. The key question in this research is which determinant is the most influence the exchange rate volatility in Malaysia. For this research, diagnostics test which is Multicollinearity test, Heteroscadesticity test, Serial Correlation test, Stationary Test, Normality test and RAMSEY test have been used to answer the key question. The result from the tests are the data are normally distributed (normality test), there is a serial correlation (autocorrelation), there is no heteroscadesticity (Heteroscadesticity), no correlation (multicollinearity test) and there is no misspecification of functional form (RAMSEY). As a conclusion, the result than can be drawn from this research paper is foreign direct investment, foreign debt, reserve, trade and unemployment rate are positively related to exchange rate volatility in Malaysia whereas gross domestic product (GDP), interest rate and inflation rate are negatively related.