MONETARY POLICY AND FIRMS' INVESTMENT IN MALAYSIA: A PANEL EVIDENCE

  • Zulkefly Abdul Karim School of Economics, Faculty of Economics andManagement, Universiti Kebangsaan Malaysia (UKM), 43600, Bangi, Selangor, Malaysia. (Email: mz@pkrisc.cc.ukm.my)

Abstract

his study examines the effects of monetary policy on firms’ balance  sheets, witha particular focus onthe effects upon firms’ fixed-investment spending. Ituses a dynamic panel system GMM estimation proposedby Blundell and Bond (1998). The focal point concernsthe two mainchannels  ofmonetary policy transmissionmechanism,namely theinterest rates and  broad creditchannelsinaffectingfirms’ investmentspending.By estimating thefirms’ investment  modelusing a dynamic neoclassical frameworkinan autoregressive distributed lagged(ARDL) model,the  empirical results tendtosupport the relevance ofinterestrates and broad  credit channels intransmittingto the firmbalance sheet condition, thatis,  firms’ investmentspending.  Theresultsalso reveal that theeffect of  monetarypolicychannelstothe firms’ investmentare heterogeneous,in that the small firms which faced financial constraint responded more to  monetarytightening ascomparedtothelarge firm(less constrained firms).  Thus,themonetaryauthorityhastoconsiderthe microeconomicaspects of firmbehaviour informulating their monetarypolicy.

JEL Classification:  E22, E52, C33  

Key words:  Monetarypolicy, Financialconstraint,  Firminvestment,  Dynamic paneldata
How to Cite
Karim, Z. A. (1). MONETARY POLICY AND FIRMS’ INVESTMENT IN MALAYSIA: A PANEL EVIDENCE. International Journal of Economics, Management and Accounting, 18(2). Retrieved from https://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/173
Section
Articles