ABSTRACT
This empirical study implements time series techniques of cointegration
and vector auto regression (VAR) to observe the effect of currency risk on
manufacturing industries performances in Malaysia. The currency risk proxied
by exchange rate (RM/USD) and manufacturing industries performances is proxied
by Industrial Product Index (IPI). This study found a positive relationship
between exchange rate and industrial product index in Malaysia. Our findings suggest no
long run relation between IPI (Industrial Product Index) and exchange rate
(RM/USD). However, there is substantial short run dynamic interaction between
them. We note the significant responses of the Industrial Product Index to
exchange rate shocks regardless of the sample periods. From the results, we
contend that exchange rate plays an important role influencing the level of
production in manufacturing industries in Malaysia.
Keywords: Currency Risk, Exchange Rate, Manufacturing
Industries Performances and Industrial Product Index.
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